Investing is the quintessential key to financial planning. No financial plan, short term or long term, can be effective unless there is an investment strategy integrated into the approach. When you actually start investing, you would have to endure a learning curve. Knowing a few of the golden rules of investing can help you through the nascent phase and you can hone your skills, acumen and judgment as an investor.
- As an investor, you must always move promptly. You cannot wait too long to decide to invest. You would miss the bus. You cannot wait too long to make an exit. You may incur losses. Entering and exiting a trade at the right time, buying something at the right time or selling an asset at an opportune moment are the bedrocks of investment.
- While you must have time by your side, don’t obsess about timing. Patience does payoff in the end, provided you are watchful and don’t make poor decisions. No one gets rich overnight. Even those who make windfall gains and apparently seem to become rich in short spans of time have had years of practice or learning. It is very difficult to start with a humble sum of money and churn out a million in no time.
- You should never invest all your money in the same stock or fund. It is considered wise to always contemplate multiple funds. You need not be an expert in all those funds. You can invest more in a fund you understand or stocks you like but do diversify your investments. That is the first step to mitigate risks.
- Always know what you want and when you want it. Don’t wait for unprecedented profits. If you have attained your target, quit the trade or exit the investment. Have a deadline in mind. You can exceed the deadline if there is a good enough reason. Else, it is time to shift your focus on other investment opportunities.
- Understand that every financial market undergoes a cycle. There will be appreciation and depreciation, troughs or lulls. Try to ride the cycle or the waves to your benefit. But don’t try to emulate what everyone else is doing without really understanding why. Others may have different goals or agendas.
- Investment is neither about buying and holding nor about buying and selling. You have to combine a bit of both. Buy, sell, hold, wait or just dispose of an asset, depending on the circumstances. Don’t be inflexible with your approach.
Be a dedicated investor, check your investments, study and review your strategies.
