Golden Rules Of Investing

Buy? Sell? Re-invest?

Woman Investor

Investing your hard-earned cash in the global stock market can be a scary business, and it’s definitely a pursuit that requires you to do your homework (and properly - like, not just reading a list of golden rules for investing). But we’ve put together these vital guidelines to keep you on track when you decide to launch yourself on to the stormy waters of buying and selling shares.

Know your goals

Are you saving for retirement 30 years away, a holiday home 10 years down the line, or your wedding or kids’ university fees 5 years from now? Once you have it clear in your own mind, you’ll find it easier to make the right decisions about when to start moving your money, and when to leave it alone. And when to invest versus when to save.

Think long-term

There’s no point investing in the stock market for a year then taking your money out. This is a long game. Or at least a very mid-game. Remember wise old Warren Buffett and his wager that over ten years a simple index-linked fund would outperform those sexy hedge funds? If you’re prepared to say goodbye to your money for a decade or more, you’re highly likely to have a nice surprise at the end of it. Or at least not a horrible surprise.

What can you afford to lose?

Having said that about the likelihood of nice surprises… the global markets do not come with a cast-iron guarantee, and as we all know from 2008, things can change overnight. Saying “don’t bet what you can’t afford to lose” might seem a bit silly, because, hey, who can afford to lose ten grand!? But really think about it: could you actually survive if you did lose that money? Would you lose your home or just be very, very cheesed off? As long as you could still provide food, warmth and shelter for your family without your investment pot, then you can consider yourself able to lose that money.

It’s hard to win at single stock-picking

It seems the easy way but when investing in individual stocks it is difficult to achieve diversification and your portfolio can become very risky. It will require your full time and attention to monitor your investments. Just remember that some people are doing this as a full-time job and they don’t always win.

Spread your bets

A diverse portfolio is a happy portfolio! The old adage about eggs and baskets definitely applies here. You want to do everything you can to protect yourself from risk, so investing every penny you have in your best friend’s new tech venture is going to be a bit less sensible than putting a bit in the stock market, a bit in start-ups, a bit in crypto, and a bit in, say, property. The same applies for your investments in the stock market, DIVERSIFICATION is key: spread over asset classes, geographies, industries, etc. Do your homework and don’t pick just one horse.

Don’t follow your heart

Yes, your best friend really needs help with his new business. She’s such a cool girl and you love her idea. But this is your livelihood we’re talking about! Don’t be seduced by how cool, cute, ethical or fun a company seems to be if there are no signs they’re actually going to turn a profit.

Understand where your money is going

You should understand the asset classes (stocks, bonds, indices, crypto, etc.) and products you’re investing in. Don’t quite “get” bitcoin? Don’t invest in it until you do. This is where you do your homework.

Reinvest – Compound interest is your friend

When your investments make a profit or pay you some dividends, you can choose to reinvest them to make even more. This is called interest compounding, it is basically interest on interest. Your money can grow faster this way. It’s money for free, basically, so don’t miss out on this simple trick.

Don’t panic!

Remember that investments will go up and down and that the future is uncertain. In periods of high volatility your investments can fluctuate a lot, but remember that you are in for the long-run, don’t react to every market movement. Try to keep your emotions!

Remember that women are good investors!

According to research by Warwick Business School carried out on behalf of Smart Investor, women’s returns on their investments were on average about 1.2 percentage points higher than men (2,456 investors, of which 450 were female, between April 2012 and July 2016).

 

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.