How To Invest: 7 Rules for Successful Investing

by humagaia

How to invest has few basic rules. Here are seven investing rules to ensure the creation of successful investment strategies.

The seven basic rules of how to invest for a successful investing strategy are:
1. Save money by being your own investment advisor & manager.
2. Invest now rather than later.
3. Exploit the effect of compounding.
4. Invest in good quality shares.
5. Diversify to reduce risk.
6. Take a contrary position.
7. Pay as little tax as possible.
Follow these rules and you won't go far wrong.

Seven Basic Rules For Successful Investing

There are just a few basic rules that you need to remember to become a success investing your hard-earned money. Here are seven:

  1. Be your own investment advisor and manager.
  2. Don't wait for "things to get better"!
  3. At all times exploit the effect of compounding.
  4. Good quality shares should be at the core of any investment strategy.
  5. Diversification, or "asset allocation", should be used to reduce risk.
  6. Become a contrarian.
  7. Be tax-efficient.

Each is explained below.

Be Your Own Investment Advisor And Manager

No advisor, manager or broker can do it for you!

Even if they employ KYC - the legal obligation for them to "Know Your Client".

Only you know your own real needs and temperament.

Only you know what motivates you.

Only you are there all the time to understand current issues in your life, and to know what needs to be done at that moment in time.

You are not motivated by the chance of earning a commission, an affiliate payment, or an in-house sale for your company.

Only you can act according to the circumstances surrounding your life.

Not only that but you save all that commission to pump back into your investment piggy-bank.

Invest Sooner Rather Than Later

Start investing as soon as you can!

This should be when you feel comfortable that the investment you make will form part of a considered overall strategy for your own investment success.

If the market is filled with gloom, assess the mood, as it may be the time to buy bargains.

It has never been truer than the present to say that the time to get going is now!

Regular investment is always the best policy, no matter the market conditions.

In doing this you will take advantage of the mathematical phenomenon known as "pound cost averaging" or "variable ratio averaging" for those not familiar with pounds.

This will be explained in a future article.

Exploit The Effect Of Compounding

Compounding is akin to compound interest.

Any profit made from your investments should be ploughed back into other investments, together with the initial investment amount.

This creates a powerful money-building strategy.

It is probably the single most effective key to the creation of real wealth.

Buy Good Quality Stocks / Shares

At the heart of every investment strategy should be stocks / shares.

How do you choose them?

By following the time-tested rule of "value investing".

This also will be explained in a future article.

Diversify To Reduce Risk

Diversifying reduces the risk that any one investment might fail.

This is the same as saying "don't keep all your eggs in one basket". This adage is never more true than for investment strategies. Diversification can be:

  • Different stocks / shares
  • Different investment sectors
  • Different countries
  • Different currencies
  • Different investment categories
  • Different packaged products
  • and so on.....

Diversify, but do not spread your investments too thinly.

Diversification will limit your risk, thus keeping your money relatively safe.

It will also ensure growth in your wealth.

Take A Contrarian Position

Do not follow the flock.

Be one of those that turns the market.

Be ahead of the change in mood:

  • so that you are in place to take advantage of an upswing, or
  • have liquidated your profits before the market takes a downturn.

History shows us that the public is emotional and usually wrong!

Observe what the herd is doing.

Then do the opposite - but at the right time.

Be Tax Efficient

Remember, it is your money, not the tax-mans.

You are not obligated to pay the tax man the maximum amount you could.

Rather it is your obligation to do what business owners do, whether they are SME's (Small & Medium Enterprises) or "big" business and corporations. Minimize your tax liabilities as much as possible.

Any saving of tax is the same as an additional profit from your investments.

Use any legal tax-avoidance scheme or strategy to keep as much of your wealth as possible. Train yourself always to think in terms of after-tax return.

But do not let this strategy cloud your overall investment strategy.

Start by thinking as an entrepreneur.

Next Investment Article

Investment vs speculation is a long running argument. Do we really need to speculate to accumulate? Investment is for certainty. Speculation is for the gambler in you.
Updated: 03/14/2012, humagaia
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