Basic Investment Rules
Windowofworld.com – Investing your money can be a great way to secure your financial future. With the right investment choices, you can be sure you have money for emergencies, to pay for your children’s education, and have availability when the time comes for you to retire. But there is a key word in the preceding phrase – really.
If you make the wrong investment choices, you may end up where you started or worse, go broke. Most people who invest wisely by making the right decisions with their money follow the same basic investment pattern, even though they may define it by another name.
You could be the kind of cynic who chooses to believe that ground rules can’t be as easy as they seem, in an area that seems so complex. It is true. However, this rule has stood the test of time.
First of all, make sure that the money you choose to invest is intended for that purpose. As in any form of gambling, there is nothing to be had and all is lost when it comes to investing. Don’t put in money that you can’t afford to lose if the market goes down.
One rule that people in any area of their life seem to reject, including the world of investing, is to rely not on your own understanding. Often times, this is the result of people refusing to entrust their money to others, believing that with a little understanding they can work on the market themselves.
This reasoning is inherently flawed. First of all, most people will not be able to uncover the complex graphs, pie charts, and statistics that the investing world uses to relate its information. In order to understand what the numbers mean, you need to have some basic training.
There may come a time after you have some experience in the market that you will be able to make the right decisions yourself, but the start-start-wet phase is not the right time to try it.
Check the background of your chosen advisor, as there are plenty of brokers out there looking for brief information. The best brokers will have years of experience, a wide variety of investment backgrounds, and may cost a lot less than you think.
Think long term. Unless you are investing millions of dollars initially, it will take time for your investment to mature and start accumulating large returns.
The best investments are proven over time, and therefore it is best to place your funds in long-term options. The details are clear – it is best to forget this money in relation to cash returns, at least for a few years.
Diversification is an undeniable truth in the world of investing. A good portfolio would include cash and cash equivalents (GIC, fixed annuity), growth investments (stocks), and growth and income investments such as mutual funds.
Diversification ensures that you don’t have all your eggs in one basket in case a share of the market is down. Note that diversification doesn’t just mean investing in a few areas, it also ensures that no one area has a disproportionate percentage of your funds.