Whether you’re a newbie investor or a total pro, here are the eight golden rules you should never forget.
Investing doesn’t have to be complicated. But as with anything, you need to know the rules in order to succeed. Here are the top dos and don’ts to bear in mind.
Start early, but think long term
You don’t need lots of money to get started with investing and the longer you leave your investments, the more they can grow. This is thanks to something called compounding.
Simply put, this is where your profits start generating profits of their own over and over again, with the potential for more each time. Imagine a snowball getting bigger as it rolls down a hill. That’s the power of compounding.
Investing works best for long-term goals, as it gives you time to ride out the ups and downs of the stock market. For this reason, it’s recommended you leave your money invested for at least three years.
Generally, the longer you leave it, the better chance of success you’ll have. Time is your best friend when it comes to investing.
Know the different types of investments
You can put your money into pretty much anything these days, but the main ones are stocks and shares, bonds, commodities, cash and property.
As a new investor, it’s likely you’ll choose a mix of these via funds - funds allow you to invest in a bunch of different things at the same time, so you don’t necessarily have to choose.
Make sure you understand what types of investments the fund can buy, what the fund is aiming to do, and any risks associated with it by reading the documents that come with it.
Understand your attitude to risk
Investments can go up and down, and there’s always a chance that you won’t make as much profit as you expect - or any at all.
Some investments are seen as riskier than others. For example, stocks are generally seen as riskier than bonds. With investing, the more risk you take, the greater the potential reward, but also the greater potential for loss.
Some investment platforms will ask you a number of questions to help you understand your risk tolerance and invest accordingly. Others may give their investments a risk rating to help you decide.
But it’s up to you to balance how much you’re prepared to lose versus how much you’re hoping to gain.
Diversify
Or, in other words, don’t put all your eggs in one basket.
Rather than buying a single investment, spread it out across different ones. That way, if one or two make a loss, your total investment isn’t affected as much.
You can diversify in many ways. For example, the number of companies you invest in, their size, the type of investment, different industries and geographical locations.
If you opt for a fund, it will give you exposure to lots of different investments and help you diversify.
Don’t forget the fees
Investing is rarely free. You can expect to be charged a small percentage of what you have invested by the platform you use, and for the investment.
Don’t time the market
As the old saying goes, it’s not about timing the market, it’s about time in the market.
Even the most experienced investors find it tricky to predict the best time to buy and sell their investments.
A sensible, long-term approach is to invest the same amount every month and on the same day, regardless of how your investments are performing.
This keeps the emotion out of it, as you’ll be investing automatically, no matter what state the market is in, and it’ll help you to smooth out the ups and downs over time.
Stay calm
When investing, don’t panic about losses. It’s all part of the journey.
Try not to fret or make rash decisions if your investments unexpectedly fall. The longer you leave them, the better chance they have to perform well.
Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.
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