10 Essential Rules For Every Investor To Follow
Investing isn’t for everyone. The lure of making money from the simple act of buying a stock and selling it at a high price is hard to resist though. It doesn’t take much time to open up a brokerage account, fund it, and start making moves in the market.
But as with most any activity, trying to play something without having any rules is bound to devolve into a nonsensical endeavor that might result in quitting altogether. But following a small handful of rules can reduce your stress and the amount of risk you take on and help you become the best investor you can be.
10 Rules to live by
Diversify – It’s the most repeated investment phrase for good reason. Diversification means minimizing risk to a single investment and allows for some forgiveness when you make mistakes.
Think Long-Term – Investing isn’t a race; it’s a marathon. Interest works best when it’s compounded over time. Short-term fluctuations happen, but having a long-term goal in mind makes it easier to weather the storms.
Don’t Invest All At Once – Allow yourself to establish a position over time. That will give you a chance to see how the stock performs based on your research and minimize losses if you’re wrong.
Cash Is An Investment Too – Keeping cash on the side may seem counter-intuitive, but it also gives you the ability to invest at a moments notice should you find a time-limited opportunity.
Homework Is Key – Successful investing means putting in the time to research stock picks before you buy. Due diligence means understanding the stock’s financials and plans for the future that will result in a higher stock value.
Buy What You Know – One of the most common mistakes investors make is investing in stocks they don’t understand. If you don’t know how a company makes money, you can’t honestly say whether a company will earn more or less in the future.
Cheap Isn’t Good Enough – Buying a stock simply because you think it looks cheap is a poor reason to invest. You need to be able to explain why the stock will go up in price.
Stick To The Plan – Investing takes strategy. If you’re a conservative investor focused on steady income stocks, it doesn’t make much sense to buy a high growth tech company, even if you think it’s a good buy.
Don’t Panic – No one makes good decisions when they’re panicking. Down markets and sell-offs are scary for any investor, but keeping calm could mean that you end up buying valuable stocks at a cheap price instead of selling on a whim and losing money.
Pigs Get Slaughtered – There’s a saying on Wall Street, “bears make money, bulls make money, and pigs get slaughtered.” Basically, it means that once you achieve the profits you anticipated in a stock, it’s time to get out before you lose out. If you’re still bullish, you can always just cash out your initial investment leaving nothing but your profits at risk.
Now that you have a base to go on, you can start adapting your own rules as they come up. Lessons are best learned through practice as you’re bound to hit a few speed bumps along the way. But as long as you stick with these 10 simple rules, you should be equipped to handle Wall Street.