Basic Investment Rules
Investing your money can be a great way to secure your financial future. With the right investment choices, you can be sure that you will have money for emergencies, for your children’s education and for when it is time to retire. But there is one key word in the previous statement: “right”. If you make the wrong investment choices, you could end up back where you started, or worse, broke. Most people who invest wisely by making the right decisions with their money follow the same basic investment model, even if they call it by another name. You may be the cynical type who chooses to believe that in a field that seems so complex, the basic rules can’t be as easy as they seem. This is true. However, these rules have stood the test of time.
First of all, make sure that the money you choose to invest is really earmarked for that purpose. As with any form of gambling, there is nothing to gain and everything to lose when it comes to investing. Don’t invest money that you can’t afford to lose if the market goes down.
One rule that people refuse to apply in any aspect of their lives, including the world of investing, is not to rely on your own understanding. Most of the time, this is a result of people being hesitant to entrust their money to someone else and believing that with a little understanding, they can manage the market themselves. This logic is fundamentally flawed. First of all, most people will not be able to begin to decipher the complex charts, pie charts and statistics that the investment world passes on its knowledge. You will need to have some basic education to understand what the numbers mean. There may come a time when you can make sound decisions on your own after gaining some experience in the market, but the initial getting your feet wet phase is not the time to try this. Check the background of your chosen advisor because there are a lot of brokers out there looking for a quick hit. The best brokers will have years of experience, diverse investment backgrounds and will probably cost you a lot less than you think.
Think long-term. Unless you are initially investing millions of dollars, it will take time for your investments to mature and start making significant gains. The best investments are proven over time, and that’s why it’s best to invest your funds in long-term options. The details of this are clear – it is best to forget about this money in terms of cash return for at least a few years.
Diversification is an oft-quoted truism in the investment world. A good portfolio will include cash and cash equivalents (GICs, fixed annuities), growth investments (equities) and growth and income investments such as mutual funds. Diversification ensures that you don’t put all your eggs in one basket in the event of a downturn in any part of the market. Remember that diversification means not only investing in a few areas, but also making sure that no one area contains a disproportionate percentage of your funds.
