Many people think that in order to become an investor, you have to have a certain set of personality traits. Maybe you need to be good with numbers, or perhaps you need to have an eye for a good deal. To a certain extent, these things are true, but the truth is that absolutely anyone can become an investor. You don’t need any prior experience and you don’t need to be a mathematical master; all you need is the desire to invest and the dedication to see it through.
With that said, however, there are certainly some rules to investing that will help you massively when you come to decide where to put your money. While investment is much easier than you might think, that doesn’t mean it’s a walk in the park; you’ll still need to have your wits about you and make some savvy and intelligent decisions if you want to see a consistent return on your money. Here are 6 basic rules of investing you should master if you want to become a true investor.
1. Learn as much as you can
Investing involves knowledge; you’ll need to know as much as you can about the corporations and entities in which you’re going to invest. For that, you should check out sites like InterInvestor, which has all the information you’re going to need in order to become a successful investor. Whether you want stock tickers, blog posts, or basic info, you’ll find it there, but you should also be doing your own research; try to find out as much as you can about any company in which you’re investing, including, its leadership structure, and its overall strategy. Knowing this will help you to make more informed decisions in the future as well.
2. Ask yourself how much risk you want to take
Although investing is not gambling, it does have one thing in common with gambling: you never know exactly what the outcome of the stock market is going to be. You may find that a stock you thought was a sure thing is actually more volatile than you’d initially imagined, and by the same token, stocks that looked like duds could prove to be valuable assets. There’s always a risk involved in investing, but there are different levels of risk, and you need to ask yourself what level of risk you’re comfortable with. Do you want to go all-in and bet on a company with no prior history, or put all of your eggs into an already-proven basket?
3. Diversify your portfolio
This is such a common piece of investment advice that it’s become something of a meme among investors. Diversifying your portfolio is the best possible way to protect yourself against an industry slump. Let’s say you’ve decided to invest in oil, but then something happens that means the oil industry takes a dive on the market. If all of your stocks are in oil, then you’re suddenly going to find yourself without a solid portfolio. That’s why it’s important to make sure you have a diverse range of stocks so that you’re not taken by surprise if something happens to one particular area in which you’ve invested.
4. Define your investment amount
Contrary to popular belief, you actually don’t have to invest a huge amount of money in order to be an investor. You can put as much or as little as you like into the pot, so you should invest according to your means. This does mean, of course, that you’re likely to get proportional returns; unless a business suddenly skyrockets or plummets on the market, a high investment will generally yield a high return, and a low investment will yield a low return. If you’re fine with that, then feel free to invest as little as you want. As you gain confidence in the world of investing, you could consider gradually increasing the amount you’re putting in, but if you’re comfortable with smaller amounts, that’s fine too.
5. Invest ethically if it’s important to you
You absolutely don’t have to leave your politics behind if you’re thinking about investing. Some say that it’s better to keep your conscience away from your investment portfolio, but we know that it can be extremely difficult to do that. If environmental sustainability matters to you, then there’s no reason you can’t look into an ethically sustainable investment strategy. You could even recruit a company or fund manager to build a portfolio for you based on your parameters. Of course, this might mean that you miss out on major investment opportunities outside of that sphere, but that’s a small price to pay in exchange for being able to sleep at night.
6. Keep it long-term
When you’re investing, always keep your eye on the long-term outcome. At certain times, a business in which you’ve invested might appear to be in trouble; it may even seem as if the business is in freefall and can’t recover. However, it’s important to make sure you’re always looking at a zoomed-out picture of your investments. Businesses undergo sudden reversals of fortune all the time; it may be that a business currently struggling could discover a new strategy or product that rockets it back to the top of the markets again. If you notice a general downturn or upturn trend, then you can make decisions based on that, but just make sure you aren’t investing based on moment-to-moment fluctuations.