10 Golden rules of investing

30 gen 2023

Investments are neither complex nor difficult. There is a set of golden rules that help investors stay on track to achieve their ultimate financial goals. When it comes to money management, investments play a key role in creating wealth. At first, it can be difficult for you to decide which product to choose, where to invest, how much to keep, and so on. But as you continue, you will get a better understanding of how the investment market works.

Keep in mind that no matter how disciplined you are and no matter what rules you follow, investing comes with risks and you can still get back less than you invested.

Here is our summary of the 10 Rules Every Investor Should Know:

1. Do your own research

Don't blindly trust what someone says on the internet, make sure it's backed up by multiple credible sources. Most people are biased about the cryptocurrencies they own, so naturally they can't say anything but good things about the coins in their portfolio while attacking the ones that aren't. Do your best to understand the positives and negatives of cryptocurrencies and develop an unbiased opinion.

2. Set clear goals

Knowing your financial goals and the time frame for which you are investing can help you stick to your strategy. For example, if you have long-term goals, such as saving money for your children's education or for a personal retirement that may be decades away, you may be less tempted to invest before that time.

3. Never invest in something you don't understand

Before investing in any investment, take the time to research it thoroughly so you understand exactly what is involved and what the risks are. Funds, for example, issue a Key Investor Information Document (KIID) or a Key Information Document (KID) that explains the fund's main functions and fees. You must read this before investing. If you are investing in individual projects, make sure you know what the company is doing and how it plans to make money in the future. In the cryptocurrency market, projects also have various documentation, white paper, roadmap. Before investing, you need to study all this and subscribe to the social networks of the project in order to understand the general mood of the project and investors and be aware of the latest news.

4. Don't put all your eggs in one basket

Today, this rule is more relevant than ever. We all know the saying "don't put all your eggs in one basket", but it's especially important to apply this rule when investing. Spreading your money across a range of different asset types and geographies means you won't be too dependent on one type of investment or region. This means that if one of them performs poorly, some of the other investments may make up for those losses, although there are no guarantees.

5. The greater the potential return, the higher the level of risk

The prospect of higher returns may be attractive, but there is usually a greater risk of losing funds. Think carefully about your approach to risk. You may be more comfortable choosing less risky investments, even if returns are likely to be lower. However, remember that no investment is without risk, and there is always a chance that you can return less than you invested. If, nevertheless, the temptation to enter a highly profitable and high-risk asset eats you up from the inside - invest, however, with a very small part of your total deposit.

6. Long-term investments are not always accompanied by high returns.

First of all, it is necessary to understand for ourselves what profitability we want to receive from a company or project. Reading the documentation and roadmap, we do not assume that the company will exist for decades. First of all, we argue that with due efforts, the capitalization of the project can double. Yes, it may take several years. However, the goal should be expressed in terms of percentage of profit, and not in terms of the investment period. After all, it may happen that the value of assets will return to the price values of a decade ago or, even worse, the company will simply close.

7. If something seems too good to be true, it usually is.

Beware of highly speculative investments that seem too good to be true, don't follow the crowd and invest (or sell) just because other people do. For example, many investors invested in the digital currency bitcoin in the second half of 2017, when its price rose, but its value fell by half in a month. In mid-December 2017, Bitcoin was trading at almost $20,000, but by mid-January 2018, it had fallen below $10,000. Those who at that moment could not cope with stress and sold “at the bottom” lost

A fortune.

8. Income reinvestment or cost averaging can help increase overall returns

The DCA strategy helps to avoid asset volatility and allows you not to constantly monitor a company or project. If you are not looking for a quick return on your investment, then you may want to consider reinvesting your funds to buy more of your investment, which will potentially increase in value and increase your overall profit. Simply put, your earnings also generate a return, which is known as compound interest. However, keep in mind that reinvesting income rather than receiving it as cash means you could lose it or see its value drop. If any income you receive is automatically reinvested – for example, if you invest in shares directly and subscribe to Automatic Dividend Reinvestment (ADR) – you will also not be able to choose the price at which you will buy any additional shares, so it can be low or high.

9. Review your portfolio and rebalance

Markets are constantly changing, and so are your investments. You will be investing for many years, so it is important to carry out regular checks to stay on top of your money. Sometimes your initial asset allocation can get out of balance, so you need to rebalance it. For example, the market can fluctuate in different directions, effectively changing the percentage of your investment. Do you want to work on maintaining a percentage that will help you reach your goals? If you don't take action, you can have a lot more of one asset class than another when the market fluctuates.

As part of the rebalancing process, you buy or sell certain investments to return to your desired asset allocation. This can help prevent a portfolio from being too aggressive when the goal is to minimize risk. In addition, by rebalancing you will avoid having too many assets of a certain class and restore your portfolio back to the original set of assets.

10. Don't try to time the market

In an ideal world, you could buy investments just before they appreciate and sell before they fall. However, no one knows which direction the stock markets will move next, so trying to predict market ups and downs can result in you buying or selling at the most inopportune times. Buying and holding investments can help you stay committed to your investments for the long term by avoiding panic decisions when the markets are volatile.

If you want to start investing, use these golden rules. By using these simple investment strategies, you can make your money work for you and take care of your future. If you think that the potential reward is not worth the risk, then investing is not for you.