Golden Rules of Investing

Golden Rules of Investing
Table of Contents


Considering that the concept of «investment» has only recently permeated the post-Soviet space, the number of newcomers in this field is skyrocketing. Based on this, we can identify a series of typical mistakes (pitfalls) of a young investor. And let's probably start with the initial capital, so...

Seven Golden Rules of Successful Investing

Rule 1. Continuously increase your investment capital.

For investing, you need money, and the total amount of these funds must constantly grow; otherwise, it cannot be called investing. The source of growth can be funds set aside from the main salary, as well as profits from already invested funds (investments).

Many materials mention the figure of 10%, which should be set aside from the salary, but in my opinion, this is all individual. Everyone chooses how much they can save without compromising their quality of life, but more on that in the next point.

Rule 2. Do not invest your last money.

Any type of investment carries increased risks, so by investing your last money, you risk being left with nothing. You should always have a reserve of money for basic needs and family support, at least for several months, if not years. But there is something worse than losing your last savings, see the next point.

Rule 3. Do not invest other people's money.

There is nothing worse than being someone's debtor, especially when you are an honest person. Investing borrowed capital doubles your risk, as losing it means you'll have to seek money to repay the debt to the creditor. Another question is, if you have a source to repay, then why do you need borrowed money?

Rule 4. Have an investment strategy.

An investor without a strategy is no longer an investor but a reckless gambler. You must have an action plan (preferably documented) for any possible situation. Moreover, you must adhere to it unquestionably, making adjustments only when the market is closed. Changing the strategy «on the fly» or during investment decisions is often driven by various emotions or the investor's impulsiveness, more on this later.

Rule 5. Avoid gambling and emotions.

I often mention the phrase - «Investing should be boring». Indeed, if you want to be successful, investing should become routine for you. Neither gambling nor human emotions have ever helped any investor, so a smart investor will never go «all-in» but will carefully build up their investment capital.

Rule 6. Don't put all your eggs in one basket.

Investors call this «Diversification». Let me explain with an example: Knowing our banks, would you choose to invest all your money in one bank or distribute it among several banks? I would, of course, not invest in banks at all, but in this situation, I would choose several banks because the probability that all of them will fail at once is lower than the probability that one will.

Another important point, beginners often make a mistake by diversifying just for the sake of diversification. Let me explain: after reading that investments should be diversified, they start actively looking for where to invest, often putting money into untested or unprofitable investment instruments, purely for the sake of diversification. As you may have guessed, nothing good comes out of this.

Rule 7. Accurately assess profit and risks.

Investing is a long-term process, so temper your appetite immediately so as not to be disappointed later. There is even a saying - «Expect the best and prepare for the worst». So, a smart investor should always know how much they can earn and how much they can lose to stay «afloat».

I hope this «guidance for beginners» will truly help you, and you won't be getting someone else's bumps. Learn to take calculated risks, and may your investments be successful!

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