Five golden rules of investment
by: JOHN DOE
on: DECEMBER 2, 2022
in: BLOG
If you want to become a smart investor, you must first understand that even the most successful investors adhere to some "unspoken" guidelines. These are golden rules you should follow regarding the ins and outs of investing if you want to excel at it. For many, investing requires a lot of trial and error but luckily, this article seeks to highlight the five golden rules of investment from legendary investors like Seth Klarman and Howard Marks.
After all, Isaac Newton did say that “if I have seen further than others, it is by standing on the shoulders of giants”. So, here are the 5 golden rules of investment as told by legendary investors, that you should always bare in mind;
Rule 1: Don’t put all your eggs in a basket
We are sure you’ve heard the adage "don't put all your eggs in one basket" before, but when investing it is especially crucial to apply this rule. The surest way to a successful investment journey is the diversification of your portfolio.
Diversifying your portfolio means spreading your assets around so that your exposure to only one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio and manage risk over time. At i-invest we have an array of products such as Treasury bills, Eurobonds, Equities, stocks, fixed deposits, commercial papers, insurance plans, etc. to help expand your portfolio and give your money the MORE that it deserves.
Rule 2: Don't risk money you cannot afford to lose
Ever heard the saying “slow and steady wins the race”? When it comes to investing, slow and steady truly wins the marathon. A vital rule to keep in mind is that you should think long-term when investing your assets and stay clear from investing money you cannot afford to lose.
According to Seth Klarman, Most investors are primarily oriented toward return, how much they can make, they pay little attention to risk and how much they can lose. When it comes to investing, you need to understand that the bigger the potential returns, the higher the level of risk.
Rule 3: Have a strategy
You should have an investment plan if you're just getting started. Long-term objectives should be reflected in your strategy, and you should avoid investing in asset classes you don't fully comprehend. Make sure you thoroughly research any investment vehicle before financing it so you know exactly what is involved and what the risks are.
Rule 4: Reinvest your gains to boost your overall returns
Did you know that reinvested profits enable you to earn compound interest? Compounding is the method through which interest is added to both the principle balance already in place and the interest that has already been paid. As a result, compound interest is calculated on an asset that has been reinvested using both the initial principal and the interest that has accrued over time.
Rule 5: Trust your guts… as well as your research
Investing from a place of fear may be one of the biggest investing mistakes millennials make today. According to Howard Marks, “the biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” When creating long-term investment strategies, you need to break free from panic mode. Yes, we said it! According to a study, investors tend to panic rather than concentrate on their long-term investment strategy when stock prices fall. The reduction of psychological investment errors is the main factor influencing long-term investment results. When it comes to investing, be calm under pressure and learn to trust your gut.
In conclusion, these rules are most effective once you define your investment objectives, as they help you figure out what sort of investor you are and also trigger your growth as an investor.
So tell us, which of these five rules will you be applying to your investment journey?
