Investment is a tough formula to crack. Not everyone succeeds in becoming a great investor. There are books, guidelines, blogs, articles and whatnot, still millions of dollars investments are lost each day. The reason is simple; lacking of basics. Those who get the basics of investment right, grow up to become Warren Buffet, Peter Lynch and George Soros. Those who don’t, tend to lose everything from roof to shoes. Nevertheless, utilities of perks of investing are getting their deserved recognition nowadays. Youngsters are showing interest in creating their investment portfolios through stocks, crypto and mutual funds. These young minds need to have a good grip on basics so that they can yield maximum returns on their investments. In this article, we have discussed five golden rules for investment which each investor should know and follow.
1) LEARNING IS KEY
The first and foremost rule is to learn. For instance, if a person is willing to invest in crypto, he should research and study about the market first. There are number of tutorials, books, articles and blogs that can help you score big in your investments. Having prior knowledge can help you decide the best time to buy, sell, hold etc. Having a good grip on statistics can help you predict the performance of a certain asset, through which you can predict its expected value and your expected returns. Never invest in something you fail to understand. A good investor knows all the opportunities to earn and risks to lose in the assets he puts his money in.
Diversification is necessary. My Quantitative Business Analysis used to say this; ‘Never put all your eggs in a single basket and never put all your money in a single asset’. As an investor, this technique of diversification has helped me and my colleagues a lot. Dividing your money into different investments reduces the risk of losing all your money from a single source. This way, you can make up for your losses from other sources if one of your investment performs badly. This risk reduction technique is one of the most important modules in learning investment.
3) CALCULATED RISKS
Investment is never without risks. You cannot negate risks completely, but you can calculate and control risks. Remember, high returns always involve high risks. Now it’s up to you. Will you risk all your hard-earned savings into an asset that might triple your amount or cost you three times more? Or will you go for a low-risk investment that might give you a sensible return and don’t take a lot from you. Top investors always suggest the low-risk option. Being ambitious is good, but investment has its own rules. So, always calculate your risks and go for something that is costing you less and giving you more.
4) HOLD LONNNNN-NNNNNG
Patience is the key here. A good investor doesn’t get overwhelmed with the expected profits. He waits and holds on to the asset instead. Long term investments give you a better chance to score big than short term investments. Going short-term limit your goals, and requires access to money at all points. This adds nothing but pressure to your beautiful lives. So, the rule is, hold long term and wait for the best times if you really want to become a billionaire.
5) INVEST AND REINVEST
The best way to increase and expand your investment portfolio is to reinvest from your returns. Reinvesting reduces risk of losing money, as the invested money came from returns itself. Moreover, this way an investor can expand his investing range and can explore other fields and assets. It increases the chances of earning big.
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