8 golden rules of investing
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27 April, 2018 - 12:01 PM GMT

8 golden rules of investing

Would you like to be able to purchase a house in a few years? Travel the world? Retire before you are 60? Unless you win the lottery, chances are that you will need to save and also start investing to get many of the things you want.

Haven’t started investing yet? Then maybe 2017 is the year to save ten percent of your income and invest! A smart investor doesn’t rely on good luck. Instead, they take the time to consider their investment goals. Then they develop a plan and choose investments that align with their needs and objectives. So, how do you do it? It really is easier than you might think.

 

# 1. Develop a plan

If you have a goal in mind, it’s easier to develop an investment plan. Think about what you want and why you want it. Then set a realistic timeframe to achieve each goal.

 

# 2. Diversification

An efficient way of managing risk is to spread your money between different asset classes such as cash, fixed interest, property and shares. This is also known as diversification.  Doing so will leave you less vulnerable if something bad does happen, so you won’t lose all of your money.

 

# 3. Judging expected returns

In order to identify whether the returns are reasonable, look at the expected returns for other products. If the returns seem high, be cautious. And be aware that some investments that appear to offer modest returns can also be very risky.

 

# 4. Protect your capital

Imagine losing a significant portion or all of the money you invested. Would you be able to recover your losses? Or would you be in deep trouble? Protecting your capital is incredibly important. If something does go wrong, then you need to know where you stand. Do not automatically trust words such as ‘safe’ and ‘guaranteed’, as they mean nothing if the investment fails and you aren’t covered legally.

 

# 5. Know what your money is being used for

If you know where your money is going, you have a better idea of deciding how risky the investment is and whether you’re comfortable putting money into it. If you’re investing in a company, research what the company does, how long they’ve been running, and how successful they’ve been with similar projects previously.

There is no such thing as a ‘sure thing’ but at least you’ll be able to make an educated decision based on solid research.

 

# 6. Tax implications

In simple terms, an investment is ‘tax-effective’ if you end up paying less tax than you would have paid on another investment with the same return and risk.

 

# 7. Warning signs

Keep track of your investments to discover and act on any warning signs if necessary. It can be easy to simply invest and then forget to check in on how things are going. You’ll feel more comfortable if you look at your investments regularly and know what’s going on. Doing so can also become a fun hobby.

 

# 8. Don’t panic

Not panicking is key when it comes to investing. Acting on a knee-jerk reaction without seeking the right advice can lead to making things much worse. Some investors try to time the market and fail.

Panicked reactions aren’t the best way to deal with changing market and economic conditions. Sometimes you can ride out a tricky market and still end up winning. If your strategy is effective and the investment is long-term, stay with it.