Eleven Essential Investment Rules

by Amanda Harvey

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Introduction

Following simple investment rules allows you to accomplish what all investors seek to do, which is to make your money go out and work for you, rather than you going out and working for money. This article offers eleven essential guidelines for how to do this successfully.

The first three rules for investment relate to defining, planning and learning, which are vital steps in any endeavor.


1. The first and one of the most vital of the rules for investment presented here is to have specific goals rather than just declaring that you want to get rich as quickly as possible. Lay out the amounts that you want to invest, the percentages you hope to gain, and the way in which you want this income to positively affect your life and financial future. Setting clear goals enables you to make a realistic and methodical start to your success in investing.

2. Educate yourself about the arena in which you intend to participate. You don’t need to be a financial guru, but you do need a good basic understanding of how the market works, and the possibilities available to you as an investor.

3. Determine your personality, resources and goals in relation to investing in order to plan your basic investment strategy. This strategy takes into account your tolerance for risk, your investment capital, the amount of time you can devote to your investing activities, and your level of expertise in financial matters.

Investment rules 4 to 7 relate to the psychology and mind-set of successful investing. Creating a winning mental perspective is fundamental in any undertaking, and especially in one such as investing which can invoke such a roller-coaster experience for so many investors.

4. Decide not to be tossed about by the winds of change and the mentality of those around you. In an arena such as finance, that is influenced so much by so many factors, and is so subject to upheaval, it is vitally important to develop and maintain your sense of balance and perspective.

5. Realize what the potential vices of investing are, and discipline yourself not to give into these. These traps to avoid include greed, complacency, impatience, and allowing emotions such as panic to overrule rational thought.

6. Accept that there will be times that you lose money, and look at the overall results that you are attaining, rather than becoming caught up in the one that went wrong. If you are consistently achieving more gains than losses, then you can consider yourself successful.

7. Don’t second guess yourself. This applies to ‘missed opportunities’ that you passed on, investments that you made and later wished you hadn’t, or entries or exits to investments that turned out to be less than ideally timed. Without the benefit of a crystal ball, no-one is going to get it right all the time, and believing that you should have is only creating pressure that will likely jeopardize your ability to move forward making clear and rational decisions.

The final four investment rules are practical action based points and applying these is the culmination of the preparation done with the first two sets of investment rules.

8. Diversifying means not putting all your eggs in one basket. A well-balanced range of smaller investments is a much smarter approach than putting all your money into that one ‘sure thing,’ which of course, does not exist anyway. Taking investment rule #6 into consideration, and accepting the fact that no investor achieves a 100% success rate, it makes far more sense that your losses might account for 5% of your investment rather than all of it!

9. Take a moderate approach to risk. Avoid going to one extreme or the other. There is no sure thing in investing, and ‘safe a houses’ does not always apply in any case. A reasonable amount of risk (often correlated to volatility) can produce healthy returns, and it is in fact the risk factor which drives the markets.

10. Find a balance between watching the pot of your investments so much that it seems never to boil, and ignoring it to the point that it can boil over or boil dry. Moderate monitoring is the ideal in keeping your investments bubbling along nicely.

11. Get help when it is beneficial to do so. It is unnecessary to think that you should be able to do it all yourself, and there are so many resources available to assist you in making your investments work for you. Whether it is a software program or tips that are offered in the form of written material or through advisory services, make the most of anything that can boost your ability to become a truly successful investor.


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”Success is simple. Do what's right, the right way, at the right time.”


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