A lot of people think that investing can seem complicated, and sometimes it can be hard to know where to start. Here are some golden rules for investing that can be helpful to investors of all types.
The Bigger the Return, the Higher the Risk
A very important rule, always keep in mind that usually, if an investment has a potentially high return, it will also carry a high risk. Certainly, for beginners, it would be advisable to start with lower return and lower risk options, even the most experienced need to think carefully. Having said that, also remember that no investment comes completely without risk!
Does it seem to Good to be True? It Probably is!
Just because someone or multiple people, recommend an investment it doesn’t mean that it is right for you, and if they are trying to make it seem a little too special it could make you wonder if it is too good to be true. Be careful of highly speculative investments and if it seems to good to be true it probably is.
Only Invest in What You Understand
Before you even think about putting money into an investment, make sure you fully research the opportunity carefully and understand each aspect of it in great detail. You must know what is involved in an investment and what the stakes are in terms of potential gains and risks.
Consider Charges
An investment is not without additional charges. If you are buying funds you would have an Ongoing Charges Figure (OCF) to take into account. Make sure you are fully aware of the expected charges relating to investment and prepare yourself accordingly. Factor these costs in when thinking about the overall returns you stand to make.
Timing the Market is Not Key
It is true to say that no one knows which way the market will fall, and trying to predict the market’s ups and downs could be like fighting a losing battle. Instead, buying and holding investments can help keep you committed to your purchases over the long term, and also serve as a way of encouraging you to avoid panic decisions when a market becomes volatile.
Review Your Portfolio
Why might you need to review your portfolio from time to time? Well, your investments will change in value over a period which would potentially mean your asset allocation can move out of sync with your investment objectives.
This means you may be required to rebalance your investing portfolio from time to time making sure you can still reach the targets you have set out to achieve.
Remember, Reinvesting Income Can Help Boost Overall Returns
Say you don’t require income from your investments, you may want to consider reinvesting to buy further amounts of your venture, and these could potentially grow in value, boosting your overall returns.
Look at it this way: your returns earn returns, something the term ‘compounding’ is used to describe. Keep in mind that reinvesting means you could lose the investment or see its value begin to fall, so there is a risk factor there.
If any of the income that you have received is reinvested automatically for example if you invest in shares directly and are signed up for automatic dividend reinvestment (ADR) you won’t be able to choose the price at which you’ll be buying any additional shares, meaning it could go either way, they could be low or they could be high.
There are plenty more golden rules for successful investing, but we hope that the ones contained within this article will give you some valuable food for thought to start with. There is no doubting the great rewards that investing can bring, but we must understand in great detail, and with confidence, the various steps that are involved and of course the risk factor.