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8 Golden Rules of Investing

The greed of huge amount of money has always put most of the investors into the lap of risky financial products. Making money from such risky financial instruments is not a cakewalk. It demands lot of discipline and patience from an investor along with a huge research and deep understanding of the financial market. Apart from this, the economic instability in last few years has left many investors in states of deep confusion. Many investors have been still pondering on whether to invest, hold or liquidate their financial investments. Here is a list of some golden rules of investing which will help you to get out of the financial dilemma and it will assist you in making wise investing decisions.

Avoid the Haste Mentality

Most of the time, an investor’s decision is largely influenced by the actions of his relatives, neighbors and friends. An investor gets persuaded to invest in a specific financial product, if people around him have invested in the similar product. If you don’t want to squander away your hard earned money then you have to invest it only after considering your own financial objectives and priorities rather than following people around you.

Make Informed Decision

An investor has to do comprehensive research before adding any financial product to his portfolio. But most of the people avoid this and they usually go by the historic performance of the product which always put them in difficult situation. This is definitely not a right method to put your money into any financial avenue. If you don’t possess right temperament and proper sources for studying the financial market then you can seek advice from an expert advisor.

Do proper Asset Allocation

A large number of studies have demonstrated that proper asset allocation is a key driver for high returns on investing. The amount of money you invest in a particular financial product makes great difference than the kind of product you invest in. Unfortunately, most of the investors spend bulk of the time on figuring out which fund or which stock they wish to purchase instead of giving focus on asset class. Deciding how much amount to invest in real estate, bonds, equities and commodities must be the important step while constructing your portfolio. An investor has to spend significant amount on asset allocation as it is an important factor which can make great difference.

Stick to Fundamentals, Not Sentiments

Short term movements in any financial product are mainly driven by investor’s sentiments while long term returns are result of strong fundamentals. So, while adding any of the financial products to your portfolio, give high focus on valuation and not on sentiment. Rather than listening to the market noise, give some time to research on financials and growth prospect of the company. Remember, if you are investing in shares of particular company then it is financial earning of that company which will drive the returns in the long term.

Diversify your Risk

Having an investment portfolio with lower correlation can assist you to diversify you risk associated to various asset classes. It also protects you from some other factors such as inflation which may lower significant part of your return. Real estate, bonds, mutual fund, shares and commodities react differently in diverse conditions and opting for multiple asset classes can make sure that your investments will not rise and fall at similar time.

Invest in Products You Understand

Though a well diversified portfolio can deliver higher returns for an investor, it is important to invest in products which you understand. Most of the investors incur permanent losses when they invest money in an asset class which behaves in surprising way. That’s the reason why being an investor you should give adequate time to understand about the investment product you are planning to invest in.

Focus on Your Actual ROR

No matter what investment approach you select, it is extremely important to focus on your actual rate of return (ROR). Taxation, inflation and fees (associated with dealing and managing investments) are three crucial factors which can influence ROR on your investments in long term. There are some alternatives available such as inflation protected instruments which can help you to lower your cost significantly.

Stick to Disciplined Investment Techniques

Most of the investors lose significant amount in stock market as they get succumb to their emotions, especially greed and fear. So it is always a wise thing to follow disciplined investment approach and have enough patience while keeping broader picture in your mind. Most of the times, the panic in the market becomes reason for investors to lose their money despite of ‘bull run’ in the market. An investor who puts his money in systematic way in right financial products and hold on to them for long term can earn outstanding returns.

Conclusion

Half of the battle of right investing can be won by avoiding any minute errors available in your financial portfolio. If you work on all the pitfalls in your investment portfolio and concentrate on right areas then there are high chances of earning decent returns in long term. An investor who invests his money for long term has good chances of achieving his goals than an investors looking to ‘gamble the market’ in order to earn higher profits in less time.





2 responses to “8 Golden Rules of Investing”

  1. Great advice. I tell folks all the time to look at investing with a long term strategy. I also like diversifying by placing new money into sectors that i am not currently in.

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