Have you heard of The Ten Commandments before? They are a set of principles related to ethics and worship in the bible that play a fundamental role in Christianity and Judaism. Translate to today’s modern language and you will understand that The Ten Commandments is actually a generic term to tell you about the fundamental principles on any topic. They serve as a generic life guide be it for the old or young.
Today we are going to talk about an all time favourite topic – investing. Every of us, in one way or another, has either tried investing or is thinking of investing. Why? Because it is one of the quicker ways to get potentially higher returns aka making more money compared to saving your money in banks on a fixed interest.
Even if you have a full time job and side hustle, the temptation of what investing can bring you in the long run is “sinfully delicious” and your regular pay check definitely pales in comparison when you put these two parallels together.
In life, there are always certain success formulas or principles we need to follow in order to achieve the kind of success we want. Do you agree? Likewise, the same applies to investing. This is particularly useful for noobs, the fast track to investing.
So let’s talk about the first five commandments of investing that will help every investor in making wiser investment decisions:
1. Do not speculate
Many experienced investors will tell you this definitely is one of the top common mistakes an investor can make in their layman days. When we talk about stocks, we always feel that we must get “insider information” and hop on the bandwagon to invest in the next big thing or hot selling stock.
However, you will soon realize that this is no different than gambling and before long, you will eventually trade yourself out of capital before you even break the profit loss margin, let alone becoming a self made millionaire! This speculation approach leads to excessive and unnecessary investment risk.
Investing is the exact opposite because it gives a balance of risk and return, taking into view of a medium to long-term harvest approach on returns which take advantages of understanding the fundamentals of the investment portfolio and looks for value.
2. Set clear goals
We need to set clear investment goals so we can decide on the best investment strategy. Some people are comfortable with high risk investments because they are hoping to retire early or lead a luxury lifestyle so they usually invest more in equities but some people feel that stability is better and their objective is to continue to live their current lifestyles so they usually invest more in low risk stocks like bonds.
There are many ways to investing so if you don’t have a purpose or a set of clear goals, it is probably advisable not to invest just for the sake of investing because without any SMART goals, you will soon be lost in the deep ocean of stocks.
3. Invest within your means
We always feel that we need to invest big amounts of money in the hopes of maximizing our returns. However, if you are already drowning in the sea of overdue bills and credit card payments, it is probably wise to have more cash in your own bank account rather than try to invest in the “big boys” like property investment. Big might not be better.
Liquidity is the most important when it comes to finances and it is better to start small when it comes to investing. Eg. Value investing. You can start value investing with three thousand dollars and scale accordingly as your finances become more fluid.
4. Invest with a long-term mentality
Investments should always be made with a long term mindset and with that, patience is indeed a virtue. Studies have shown that investors who stay the course often come out on top over time. With investments, time and compounding interest are your best buddies when it comes to harvest time.
Markets, without a doubt, will rise and fall because that is the inevitable natural cycle. Like a ship, it will experience occasional storms in natural conditions but once it overcomes the storm, things fall back to normal, as calm as a light sea breeze. So if nothing fundamentally changes within your original investments, just continue to sail until the storm is over and your patience will reap great dividends!
5. Set aside an emergency fund
It is important to set aside an emergency fund in any situation, more so when you decide to use a part of your monies for investment. A good amount will be 6 months of your income but if you have dependents, it is probably advisable to set aside at least 12 months to 18 months should any unforeseen circumstances happen.
Because you will not want to be forced to liquidate your long-term assets in a hurry and when the market is in decline as you will make losses on the returns later. Use only the funds you can lose for investment purposes without hindsight regret as all investments carry a degree of risk.
Investing is a good alternative to growing your money but only do it when you have pretty good finance fluidity. After all, investments are supposed to make your life better in the long run and not the opposite. All the best in starting your investment journey!