investment rules

Basic Rules for Successful Investing


by

13 September,2011

You probably know that one of the best ways to grow your wealth is to participate in investing. Investments can be a great way to grow your money, using the power of compound interest in your favor. However, you do need to be careful. There are some basic rules that you should follow if you want to find success with your investing:

Make Sure You Look for Value

It’s important to look for value when investing. It doesn’t mean just buying cheap stocks; you have to make the effort to actually find good value. Look for stocks and other investments that are likely to increase in value over the long haul. You also want to find those that are priced relatively low. Make sure that the investment has solid fundamentals that are likely to survive a market setback.

Don’t Panic and Make Investing Decisions Based on Fear

One of the worst things you can do when investing is to make decisions based on fear. Don’t panic when the market drops. Instead, consider the merits of your investments. Has anything changed fundamentally about the investment? If the only thing that’s different is that the market is struggling, don’t get involved in panic selling and lock in your losses. Make investing decisions based on the merits of the investment, rather than based on fear and following the crowd.

Have a Plan and Be Consistent

You can improve your investment success by creating a viable investment plan and then sticking to it. Be consistent in your investing efforts, and eventually your planning will pay off. Create a plan and stick to it. Don’t let the blips of the short-term market drag you down to make poor decisions. Consider your future and your current situation, and create an investing plan that will help you meet your goals.

Make Sure You are Properly Diversified

Don’t put all of your eggs in one basket. Look at your portfolio and consider how you can diversify. Diversify across sector and asset class, as well as include some foreign investments. Be sure to carefully consider your options, though; it is possible to be too┬ádiversified and then reduce the overall effectiveness of your portfolio. Give it some careful thought, and use your investing plan to help guide you. Remember, too, that you will likely need to rebalance occasionally.

Watch Out for Items that will Erode Your Earnings

All investment comes with costs. You have transaction fees to pay, fund fees and other costs. Additionally, you have to consider inflation and taxes in your investment strategy. While you can’t avoid fees, taxes and inflation, you can reduce the impact that they have on your real earnings. Consider what you can do to reduce fees by becoming a DIY investor or the alternative is to use a service like Betterment to keep your costs low and get professional advice at the same time. Consult with tax professionals to put together a tax plan that can help you reduce your tax liability. Find ways to reduce your exposure to inflation. You will be able to keep more of your own earnings when you are careful about reducing your losses.