The 5 Golden Rules of Investing
If you are reading this, you probably understand that investing is smart and that a lot of people have made a lot of money doing it. The problem is, you’re scared to lose all of your money, and you don’t want to do the work involved.
Good news is, we’re about to tell you that although all your concerns are valid, there is something you can do about it. You can understand investing, and if you read this 5-step guide, you’ll have the basics you need to get started. You don’t need to be scared to lose all of your money if you look long term and follow basic investment rules.
Consider this your investing for beginners 101 cheat sheet. We explain the basics of simple investing and aim to inspire the proper mindset you need to succeed.
Enough chit-chat — let’s get started!
Rule #1: Draw a personal financial roadmap
Before you engage at all in any investment, you must have your plans clearly laid out.
- How much do you want to invest?
- Why are you investing?
- What do you know about the investment option? Do we have sufficient information to go by?
- The time frame of the investment
- The returns you are expecting from the investment
- The RISKS involved
You must also know and understand your risk appetite. The reward for taking on risk is the potential for a greater investment return.
Rule #2: Create and maintain an emergency fund
Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. It’s ideal to make sure you have up to six months of your income in savings. Automating a tiny bit of your income into a savings account can help you ensure that you always have some liquid enough cash for emergencies.
Rule #3: Diversify Your Investments
Never put all your eggs in one basket.
Most of us have fallen victim of this, so it must be avoided when it comes to investment. To reduce the investment risk, it is wise to spread your investments in various asset classes (stocks, bonds, agric, etc.) We can be investing in mutual funds, Nigerian Treasury Bills and at the same time be investing in agriculture.
Rule #4: Invest Periodically
You should avoid investing all your money or savings at once. By making regular investments with the same amount of money each time, you will buy more of an investment when its price is low and less of the investment when its price is high. Investing periodically allows you access the various interests.
Rule #5: Leave your Investment Alone
Everyone wants to invest and get quick cash. But thinking this way commonly leads to making wrong, poor investments.
In 2016, 3 Million Nigerians lost 18 Billion Naira to MMM, and many more lost millions to clone Ponzi Schemes. To get the best returns from your investments, you must be prepared to think long term.
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This post originally appeared on Happy Economics by Tolulope Eweniyi.
The Happy Economics blog covers finance, investment, business and economic topics that we find interesting. The aim of her blog is to simplify everything people want/need to know about finance, helping them make better personal finance decisions and to better understand the economy.