AdviceFinances

10 Basic Rules Of Investing You Need To Know

You may have heard all about the startups sprouting up every day and how they seek to solve a wide range of problems. For such a market to exist, there obviously needs to be an investor market funding it. These investors take the risk and put their money in this company in whatever capacity they can. To join the ranks of these people gives you a wonderful opportunity to build your wealth and ensure an early retirement for yourself.

I have a friend who works with a team of term paper writers and is absolutely obsessed with investing. He saves heavily and then puts that money in different investments. He’s also a voracious reader of books offering financial education. I once randomly asked him to try and distill all of the wisdom he had acquired over the years into 10 clear rules for investing which I could follow to wealth.

 

  1. Invest your Time and Effort long before you invest your Money

One of the biggest mistakes newbies make is to leap into investing waters with both feet without taking some time to think about what they’re doing. Investing is just like anything else in life. If you want to go out there and start driving; it’s unlikely you’ll just hop into a car, put your foot to the pedal and start driving like a pro. You’ll need time to learn how to drive first. Once you’re good enough, you’ll get tested and you will be rewarded with a license. You can then enjoy your newfound skill and drive to your heart’s content.

Why would investing be any different than any other skill? It takes just as much hard work and dedication, sometimes even more, as any other skill you might want to learn. If you want to be a great investor, start by investing your time and effort, each of which you will have plenty of in the beginning, into learning.

 

  2. Your Goals should dictate your Investment Style, not other Investors

Just because everyone is rushing to a particular type of investment doesn’t mean you should rush to the same type of investment too. You may have very different goals from everyone else and so their investment style may not suit you.

The first step then is to define your goals and figure out what, exactly, you’re investing for. Do you want to raise a decent amount with which to retire? Do you want to grow insanely rich off of your investments? How old are you? Don’t get carried away by the tides of popular opinion. Follow your own internal compass and it will lead you to your goals.

 

  3. Track your Investments

Your duty as an investor is to stay on top of your investments, whether they are in business, real estate, or the stock market. Always know where your money is and how it is doing. It is only by keeping track of your investments that you will be able to do something if things go wrong.

 

  4. Always have a Safety Net

Investing is all good, but it can also be all bad; it can make you rich, or it can make you go broke. That’s why you should some money in a safe investment so it will come in handy when things go wrong. Put some of your money in savings or certificates of deposit. You can also invest in treasury bills and government bonds, just to be safe.

 

  5. What Kind of Income are you working for?

Making money isn’t just about making money. There are three types of income:

  • Your earned income is what you get at your job, and it’s the highest taxed. It’s pretty hard to build wealth with it and you only earn for as long as you can work.
  • Your portfolio income comes from your paper assets. It is also taxed but is a little easier to build wealth with.
  • Your passive income comes from distributions, royalties, and real estate. It is the easiest to build wealth with and has low taxes due to the numerous tax benefits.

 

  6. Turn your earned Income into passive Income

The best way to build your wealth is to figure out how to turn your ordinary income into passive income. Invest the money you get in assets that will generate cash and put only a little away as savings. That way, it will slowly grow and pay you back.

 

   7. You are your own greatest Asset and Liability

There is no such thing as a risky investment. Only the investor is risky. A good investor will go for risky investments that he or she understands well because they know that that is where the best bargains can be found. A bad investor will not calculate their risk and will go for terrible investments. It’s that simple. This is why you should invest in your own education before you can ever invest your money.

 

   8. Always be prepared

Most people think of investing as a punting game where they try to predict the future and get rewarded for it. A good investor will instead try to be prepared for anything by having the right education, the right timing, and some liquidity to help take advantage of any opportunities that come by them.

 

   9. Know how to evaluate Risk and Reward

In order to know which deals are the best, you should know how to calculate your risk and reward. You should know when the risk is too great for the reward and when the reward is great enough that the risk is worth taking. It is only by mastering this that you will consistently be able to pick the best deals.

 

   10. Don’t be emotional

This is perhaps the greatest rule of investing. You cannot afford to be emotional at any time. Invest according to logic and not your emotions. Investing is fairly simple. You buy low and you sell high. Simple is not easy, however, and many people find themselves doing the exact opposite of what they’re supposed to do, simply because they got too emotional.

 

Final Thoughts

Ultimately, financial education is just as important as traditional education and should be given as much priority in your life. Keep learning new things and you will never regret it. When you finally become financially independent, it will all be worth it.

 

Author bio

Kurt Walker is a writer and an editor from London. He loves sport, to listen to music, and to communicate with different people. You can follow him on  Twitter or Facebook.

 

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