5 Rules Every New Investor Must Know Before Investing
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Congratulations on taking the first step in what should hopefully be a life-long and very fruitful journey of investing. Starting on this journey might seem daunting, at first, but millions of people have reaped a rewarding bounty from the markets by following a few basic yet essential investment pointers.
These five golden rules will act as your compass on the investment map:
Understand the power of compounding:
The key to your future riches lies in the untapped power of your investment compounding over the long term. The earlier one starts investing, the longer his investments earn returns. What’s more, his returns also earn additional returns. At the end of the day, regularly investing a small amount consistently over a long period can trump the returns of a larger investment over a shorter time frame. In order to extract the maximum possible returns from your equity investment, you need to ensure that you stay invested for the long run through the boom and bust cycles of the market.
Understand your investment goals:
Always remember that your portfolio must serve your life goals. Your investment can help you meet your life goals- saving for kids’ education, buying a house, car or saving up for retirement if you chalk out a roadmap for these life goals with your financial advisor. There are many who naively follow the DIY investing method and later regret it when their investments do not meet their goals.
Embrace your risk appetite:
The risk associated with investing in the markets varies from instrument to instrument. For instance, investing in mutual funds is riskier than investing in fixed deposits. However, many mutual funds do give better returns than fixed deposits over a period of time.
Before you commit to a market instrument, assess your needs, goals and your capacity to bear risk. Consider investing in a mutual fund or the shares of a company only when stock market advice is coming from a trust-worthy market expert.
Learn not to be emotional:
People often tend to become emotionally invested in their portfolio, and compromise on tenets of good old common sense and objectivity. Your portfolio will most likely go through ups and downs. While it will delight you with the heady highs during a bull market, it shouldn’t dent your investment discipline during a demoralising bearish phase. As an investor, you must cultivate the rigour to persistently continue your investments over the long term, and not liquidate them during rough phases. When it comes to investing in the markets, it is always advisable to be rational about your investments by listening to reliable stock market experts.
Appoint a Financial Advisor:
Over the course of the last few decades, behavioural economics has shown that people often play fast and loose with their investments. Their investment decisions are often influenced by those in their social circles. Alternatively, people end up falling prey to irrational cognitive biases. Sound stock market advice from a reputed stock market advisor can be your true guide through such a confusing landscape. Deeply researched market reports and well-grounded investment calls can stop you from redeeming your investments in a grip of panic.
All in all, a disciplined outlook to investing and a calm and patient attitude during market lows can help you not just weather the worst of the market lows but also benefit from them. The same way that one goes to a car mechanic to get his car fixed, financial advisors are available to help you get your portfolio just right. Taking help from a quality financial advisor can go a long way in wealth creation for you and your loved ones.