Investing appears to many people as a rather complicated activity. However, it turns out that it doesn't have to be that way, and in addition, investing can help us to realize our dreams and life goals. What's more, it is based on principles, the observance of which ensures a lot of money and a peaceful sleep.
Success in investing is possible above all thanks to careful preparation. An action plan is needed, as well as analysis and knowledge of risk management. We also need patience and an idea for investments. The problem is, above all, that spectacular investments do not happen too often. There are many more small and stable companies that pay dividends regularly and thus work on our profits in the long term. It turns out to be valuable to know how to choose investments that not only earn money, but at the same time are in line with our investment style. They give us a guarantee that we will sleep peacefully. Searching for the golden mean will become easier if we assimilate the golden rules of investment.
First, take care of the plan
Even before we start trading our money, we should be aware of our investment goals. It is therefore worth asking ourselves why and for what we are actually investing. This reflection will make it easier for us to determine what to expect and the choice of a really attractive investment will cease to be a serious problem for us.
Secondly, invest in what you understand.
One of the most important principles guiding modern investors is that you should not invest in products that you do not fully understand. So if we haven't adopted the principle of leverage, we have to take into account that both Forex and futures contracts will be investments with a significant risk in our case. Therefore, if any issues are unclear to us, it is not worth risking, because there is no point in incurring losses that we cannot explain to ourselves.
Thirdly, do not rely on a single investment
The importance of diversification cannot be overestimated. If we invest all the money in one company, we will ask ourselves for troubles. Today the price includes various investment portfolios. It is worth betting not only on many companies, but also on different asset classes.
Fourthly, have respect for the market
The market is growing fast, but you should not be surprised that it also has spectacular falls. It is not worth arguing with this, because market losses never occur without a reason.
Fifthly, the market has the ability to discount everything.
Stock exchange prices do not reflect the actual value of shares at all. It is rather a combination of this value and the expectations of analysts and investors. So it may happen that the market will react to good news and growth to unfavourable information. Only the market reaction tells us what investors' expectations were.
Sixthly, following the crowd does not always pay off.
If we look at the problem in the short term, investing in companies together with the crowd can bring us considerable benefits. In the long run, however, it is more difficult to be optimistic. Very often it turns out that the majority is not right at all, and fashionable companies record spectacular drops. Of course, this does not mean that you must always act in such a way as to be in opposition to the crowd, but it is much better to rely on a single investment authority, even if not all of his actions seem understandable to us. The risk of tripping does not disappear, but it is incomparably lower than would otherwise be the case.
Eighth, avoid the idea that this time the market will work differently
We could see how disastrous it was in 2008. Everyone was convinced that there was no way property prices could start to fall sharply. It turned out, however, that this conviction had fallen. Once again.... The markets are changing, but they are still moving in trends, and therefore, the bearishness is to be expected from every bull market. The market cannot grow indefinitely and its collapse is part of the market specificity.
Ninth - reinvest the dividend
Spending dividends on pleasure is an extremely pleasant experience, but it is important to remember that it has nothing to do with common sense when investing. This reinvestment of dividends offers the greatest potential and this must not be forgotten.
Tenth - value, not price
All of these principles make investing easier and more profitable. The key to success, however, always turns out to be thinking about how much a product is worth, regardless of how the market values it.