Golden Rules For Investing To Become Successful Investor
Knowing golden rules of investing will help you for better performance and increase the chances of having a good return.
Everybody wants to earn the big money for which everyone is willing to run in the race of the Stock market. As easy it seems it is not that easy to invest in the stock exchange. Requirements for trading in the stock exchange include:
• Great research
• Understanding of the market etc.
The high volatility of stock markets leaves the investor in great confusion about what to do next. Moreover, investors get stuck in making the decision for a stock whether to hold, buy, sell, or invest more. There is no such formula that can help you to become a better investor but there are some golden rules that should be followed. All these golden rules will help for better performance and increase the chances of having a good return.
1. Herd Mentality should be avoided
Most buying decisions are influenced by friends, acquaintances, relatives, etc. If everyone around is investing in a stock that does not mean even you should invest. Moreover, if you follow their advice in the long run it will definitely backfire and you will regret your decision. Additionally, as Warren Buffett correctly said “Be fearful when others are greedy, and be greedy when others are fearful!”
2. Go with a disciplined investment approach
A disciplined approach of investing with patience will provide you outstanding returns. Moreover, systematic investment in the right shares and holding on to them with patience till the right time will benefit in long run.
3. Keep your expectations real
There is nothing wrong is aiming for the sky and hoping the best for the returns you generate via an investment. But having unrealistic expectations over unrealistic assumptions can cause you trouble. Additionally, you should not expect a high return like that in a bull market as the market keeps on changing. It is never the same so you should never invest more than 12% if you want to keep yourself out of trouble.
4. Monitor Intensely
The portfolio should be monitored regularly and systematically. Moreover, in this digital world, any news around the world can affect your Return on Investment. It is necessary that you keep yourself updated about all the news around you and also globally. In addition to that if you are not a full-time investor then you should hire someone to manage your portfolio. As investing in the stock market requires time, market research, stock analysis and patience without which higher returns are not possible.
5. Invest only in what you understand
Never invest in something or some company that you don’t know or don’t understand what they do. Moreover, if you lose the money invested in these unknown things you won't even be able to understand- why you lost.
6. Don’t get driven by your emotions
When psychological factors take over your decision-making abilities then you might need to get back on track. Often during a bull market, people run to get a higher return in a short duration. For this purpose, they invest in unknown companies and keeps the research aside which is wrong. Similarly, in a bear market investor sell off their stocks at a lower price. These impulsive decisions can lead you to a huge loss that will affect you harshly.
7. Stay Diversified
The stock market is a very risky place, the need for diversification is very high here. If you invest all your money on a single stock no matter how much confidence you have in the company, the market changes in a blink. Your portfolio’s downfall will depend on the downfall of the stock which is not good for trading. Moreover, you should invest in a bundle of stock with a low correlation so that if one goes down, the other one goes up and you are at a neutral. A diversified portfolio will help for the mitigation of risk and fewer chances of a huge loss.
8. Don’t try timing the market
Timing the market means thinking when the market will rise, I will sell at a higher cost, and when the market will fall, I will buy at a lower cost. This timing of the market should be avoided at all costs. No expert can answer the question of when is the market going to rise/fall for this reason you should avoid timing the market. As the market is unpredictable you cannot rely on your assumption about the market.
9. Keep an Emergency Fund& invest additional money only
Having an emergency fund is very important and a huge need of the hour looking at the volatile markets. An emergency fund will help you deal with tough times of investing and you can stay invested for a long period as you have excess cash. Moreover, you should only invest the excess money you have and not the money you will need for livelihood. Losing money that will help you feed your stomach will be more painful than losing excess cash.
10. Always think long term
When you invest never think of it as a short one and have a vision of the long term. In order to maximize the profit with an income that is stable, you should go for the long term. Moreover, if you want higher liquidity of funds you need to go for the short term. Otherwise, if your liquidity needs are not too high then always invest for the long term to see high growth.
In conclusion, you should always be aware of some psychological factors that will drive you away from the right decision. Investing is an activity that takes a lot than just your money. You need to give in your best to have the best as market forgive none. A slight mistake and you will lose all your stake. With risk comes ample benefits that are shown in the form of Return on Investment (ROI). Additionally, investing will feel risky and unsafe but once you get a hand on it you will be motivated to put more.