What are The Top Golden Rules of Investing …!!
Everyone wants to make more money. The traditional source of income hardly fulfills all your inspirations. Investors always look out for the other sources of income. Some look for passive income generation or others consider stock investment. Equity is an attractive option to make money. But It requires a lot of patience and discipline, but also a great deal of research and a sound understanding of the market to make money. When it comes to the world of investing, there are various things investors need to note. There are also certain steps, which investors need to follow to increase the chances of investment success. Let’s look at some of the top golden rules of investing:
Invest for the long term:
Investors should never fall into the trap of “Getting rich quick scheme ‘’. It’s better to remain invested for at least five years or more for good returns. If an investor puts money in the long term rather than the short term, then he/she gets tax advantages on capital gains. Often long-term gains are taxed at rates below your income tax bracket.
Take Informed Decision:
Before making any decision, one should do proper research and analysis. Most of the time, investors generally go by the name of a company or the industry they belong to. This is not the right way of putting one’s money in the stock market.
Diversification of Portfolio:
One of the investing best principles from ages is ‘’ don’t put all your eggs in one basket’’. The diversification of portfolio is one of the most important things to do while investing. Spreading your money across a range of different types of investment products will reduce dependence on one kind of investment for income generation. It means, if one of them performs badly, hopefully, some of the other investments, make for these losses.
Avoid the Herd Mentality:
The most common mistake investors make is to invest in those assets, which is recommended by family, friends or acquaintances. If everybody around is investing in those stocks, then potential investors tend to do the same. An investor should avoid such a herd mentality to protect their capital from loss.
Don’t try to time the market:
In the investing world, one buys the asset at a low price and then sells those assets at a high price. However, no one has an idea about what time the market will behave in which manner. What is the higher price to obtain maximum profit? For instance, a person has a view that the price of the stock is going to be high.
However, the majority of the investors have a totally different view and just do the opposite. It means you could end up losing your hard-earned money.
Review Your portfolio:
It’s always better to review your portfolio on a quarterly or monthly basis depending upon the mood of the market. Too much churning of the portfolio will result in rapid loss. But one needs to rebalance its portfolio from time to time.
Don’t make a decision based upon emotion:
Most of the time investors lose money because of bad decisions taken due to emotion either fear or greed. In a bull market, the lure of good wealth is difficult to resist. In the time of the bear market, fear of further losses creates panic among investors. Fear and Greed are the worst emotions to have while investing.
Anyone who invests always expects better returns. Sometimes, those expectations are not realistic. One could be heading for trouble if one keeps having unrealistic expectations.
Things require before preparation for investing:
Before you start preparing for the investment, it’s good to spend some time on personal finance, investment is kind of like the crown of personal finance management. There are mainly four pillars of personal finance, one should take a note of it.
- Debt Management
The foundation of good earning is budgeting. A proper investing approach requires proper financial goals and strict financial discipline, which starts with budgeting. A well-prepared budget will help you in acting rationally.
The next important level is Saving. To become financially independent, saving needs to be part of a habit and default behaviour. It contributes a large part of your financial decision.
The third and most important level is debt management. One should know how to handle debt. Debt management will help you in using debt as a medium to grow rather than making it a liability.
When you know the art of personal finance management, you will feel more confident and mature in taking any investment decision. Investment in art and it requires patience, practice, and perseverance.
*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing