5 Golden Rules Of Investing

By BankBazaar | August 4, 2016

5 Golden Rules of Investing

Investing is important to safeguard your financial future and keeping up the fight against rising inflation, but unfortunately, not everyone gets it right. For every successful investor, you are likely to meet two unsuccessful ones, who might have lost a huge amount money trying to play the game.

Unlike many who consider investing as a necessary evil, where there is no escape from the risks and market turmoil; investing, actually can be quite challenging and fun at the same time.

So how does one make sure that he has all the risks covered, with good returns and stability when he plans his investments? Well, the answer is that there is no solution that’s perfect when it comes to investing.

Every individual has different requirements. Salary, expenditure, loans, risk appetite and other factors determine one’s financial planning and investment pattern. However, there are some golden rules of investing which can probably help you yield good returns. Here is a quick look at five golden rules of investing that will help you plan effectively, irrespective of whether you are investing Rs. 1,000 or Rs. 1 Crore.

Rule 1

Understand investments before you take the plunge

Before you start investing, it’s important to at least know the basic rules of investing, and understand the options you may have. Most of the time, first-time investors make the mistake of investing in options which they are not sure of and end up losing their hard-earned money.

For example, if you do not have a clear idea about the stock market, it’s better to stay away from it initially and look out for other investment options. Also, do not invest in stocks, just because your friend, neighbour or relative may have invested and gained high returns. Your investments are just as unique as your needs and risk appetite, so choose to walk alone, when it comes to investments!

Understand your financial needs and invest accordingly, by choosing something which is beneficial for you. Want a taste of the stock market? Try Mutual Funds before choosing stocks.

Additional Reading: Guide To Start Investing For Beginners

Rule 2

Do not attempt to time the markets

The only mantra that works well in the investment market, is to buy low and sell high. Many have tried to time the markets in the past and many continue to do so. Avoid falling in the trap of timing the markets, and invest in strong fundamentals instead.

As an investor, always choose to invest for a long term, rather than choosing to exit at every possible opportunity without considering the returns and risk factors. A long-term investment may witness a lot of fluctuation, but if you have made the right investments, you should not be wary of the market fluctuations.

Rule 3

Stay away from rumours

You may come across rumours about market volatility; some from far-out voices, some from well-known and trusted sources, but make sure you do not blindly follow these rumours. Do some thorough research on your own to get a better picture.

Sometimes there is leaked inside information about a penny stock that may rise overnight. Take all such information with a pinch of salt, unless you know that the company has a very good position in the market so that people will invest in it overnight. Remember to do your homework properly to avoid unforeseen circumstances!

Rule 4

Keep your expectations realistic

It is difficult to keep your expectations realistic, especially in a bull market run. If you are expecting to become rich overnight, investing is not likely to offer you any assistance. You are better off buying a lottery ticket, and pray to God for some good luck and blessings.

Investing is a long-term process, so keep your expectations as close to reality as possible. If Fixed Deposits in banks are offering you 7-8% returns annually, do not expect Mutual Funds or equity market investments to double your investments in a couple of years and give you unrealistic yields.

Rule 5

Track investments proactively

Investing is a journey and not a one-off process. If you are investing on your own, ensure to track your investments periodically. Monitor which of your financial instruments is performing well, which one needs a little tweaking, which one is nearing maturity and needs reinvestment.

Additional Reading: What To Remember When Investing In Mutual Funds

The most important rule about investments is to be alert, be informed and take the right decision at the right moment. Follow these simple yet effective rules of investing, and even before you realise, your funds will grow!

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