Taking that first step into the complex world of investing, be it in the stock market, the housing market, the bond market, or a newer and more volatile market like forex, crypto, or even NFTs takes guts and a leap of faith.
Not only do you have a steep learning curve to surmount, you also have your inexperience and your emotions to battle with all through the way up. Once you step into this industry, you will learn very quickly that “Psychology” is the biggest problem you will face and it will get worst especially when it comes to you losing your hard-earned money in bad market periods.
However, the long-term benefits of mastering this unique skill of investing are so great that you should not let your lack of any prior background in finances or your lack of a successful mentor to guide you along your journey discourage you from moving forward.
In this article we will be opening up this world of investing to you by breaking down the 5 golden rules you must live by if you really want to succeed as an investor in any market.
- Learn Before Thinking Of Earning:
I will be honest with you, investing is not an industry you can just come into and expect things to just naturally fall into place. You need to take time to learn the skill sets required and do the research work before you begin to have consistent success in this.
And when I talk about doing the research required “I do not mean chasing after rumors or getting an investment tip from your friend that believes he knows the next sure thing”. You want to actually get your hands dirty by researching things, and finding out all you can about the industry, asset, or instrument before thinking of investing a dime.
If you skip the stage, you will almost always end up regretting that you tied all your money into something that looked shiny at the beginning but ended up being a lie. This rule holds true no matter the market you choose; Real Estate, Stocks, Farming, Forex… whatever!
- Always Go In With A Plan and An Exit Strategy:
Once you have done your research and learned all you can to succeed in your industry or asset of choice, the next step is to craft a complete plan of how you would want to go about investing in this said industry.
And the only rule you want to remember throughout this process is that “no matter how sure it may look/sound, nothing is 100% guaranteed”. You want to take your time to do your research, learn about the asset, and figure out what the worst-case scenario would be for you!
Entering any kind of investment or business dealings without doing your share of due diligence will almost always lead to you losing money and getting frustrated in the end when things don’t pan out exactly how you imagined. This is why having a plan and an exit strategy is one of the most important golden rules in investing.
- Your investment plan will help you answer important questions like:
- How long should this investment last?
- What will be the total cost/risk I am willing to take on this investment before I need to cut it?
- What does a win look like and when can I start taking profits?
- What would my money management throughout this investment period look like?
- Can I hedge my investments somehow and reduce my downside risks?
- Do I need to get professionals to step in and guide me through?
By going in with a complete and robust plan, you will always be in a much better position to make informed decisions no matter what gets trowed at you. If you don’t make these kinds of plans, you will panic and lose yourself at the first sign of danger.
- Set Realistic Goals and Know Your Limitations:
Everyone has heard someone talk about a big stock win/a great stock pick. or a business they started that turned into millionaires overnight. However, what they do fail to mention to you is how many other investments they had that never worked or how many businesses they saw fail before finding that one golden one.
Setting realistic goals in your investment journey can save you from a lot of heartaches, frustrations, and lost hope.
It is better to take the small wins over and over again year after year and build your reputation, account, and self confidence instead of loosing everything you have in a bid to catch a home run that can turn you into a milloniar over night.
So when getting into any investment, always keep a realistic goal you can easily achieve and then build from it as your experience grows in that industry.
When it comes to stock investing, it is important you avoid trying to time the market or pick individual stocks as a beginner. Systematically investing in broad-based indexes is the best way to start until you pick up the knowledge and skill set to become a successful trader.
“Rome was not built in a day“
- Only Risk What You Can Afford To Lose:
Investing deals a lot with Psychology! How you handle your emotions not only during the bad times but also during your good runs also will have a lot of direct effect on your success in this industry.
With that being said, it is important to note that the fastest way to ruin your psychology is by investing too much or more than you are willing to lose. This could include borrowing money, betting all you have on an idea, or putting yourself in a position where you start praying for a miracle.
The moment you begin to have sleepless nights because of the amount of risk you took, it is usually the best time to cut it off. Yes, you might have a big win every now and then, but the question is what will happen if this ends up not being the big win you are looking for, are you willing to stomach that loss?
- Always Monitor Your Investments and Focus On the Long Term:
While they are a few investments you can leave to run on auto-pilot most of the time, you will still need to come in and check up on it once in a while. Other investments are not like that, you will need to constantly keep your eyes on them to ensure they are running and still moving in the right direction.
This is why it is very important for you to have a way to always monitor and track your investments. If you need to bring in professionals to help you keep track of the various parts, do not hesitate because it would pay off well in the long term.
Conclusion
If you play by these golden rules, you will not only have a clear and realistic path to take when you step into this investment world, but you will also have a blueprint of the areas you will have to work on and develop better for you to be a well-rounded investor.
So take the steps now and use this article as your benchmark for asking important questions when it finally comes down to you making any investment.
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