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Ten main rules for the novice investor

Ten main rules for the novice investor

So, you’ve got a spare bit of money and decided you want to invest it? Good choice! But before you take this important step, you should take the time to learn the main rules of investing.

If you take a risk, do it with total awareness

The first rule. Evaluate the risk. Nowadays virtually all investment activities proceed via the internet, including investments in startups and stocks. And before you prepare your money for investing, correlate the chances to earn and the risks of losing money. It is important to understand: the higher the chance of earning, the greater the probability of losing everything. For example, you were given the opportunity to invest in currencies. First, find out: how risky is it? Maybe it’s better to think about investing in real estate or securities? The second rule follows from here: go through training.

Any experienced investor will always say: the most important thing is information – knowledge. First, read or listen to lectures on what investing is all about, say, in stocks or precious metals, how the trading system of the exchange works, what a broker is, and so on. It is important to know that the way to profit is not blind luck, but the result of clearly thought out actions, and it is not a game, but rather work, and very serious work, which is impossible without thorough preparation.

The third rule. Invest only in what you understand. When someone offers you to invest in something – before you do anything else, study the topic. Do you know what Forex, futures, Bitcoin, stocks, and startups are? If you know and you can describe it – to yourself or to someone else, then go ahead. But in no case should you invest in something you have little idea of.

Someone else’s money is a heavy load

Rule Four. Never invest your last sum of money. There are a lot of websites set up to attract potential investors, where they offer the chance to start earning from 50 euros. It’s true you can start out even with this sum, but the main thing is that this is not the only money you have. Of course, you must understand that by investing only 50 euros, you will not earn much. But it’s also important to understand that it’s not worth rushing: you read about something interesting and promising on the internet – and decide immediately to invest money in one or another project aiming to “earn money quickly”. In no case should you mortgage your only home to get a large amount of money for investment purposes, or take a large loan from a bank.

Never invest your last resource if you do not have sufficient savings in a bank (or, better yet, several banks) equal to about three months’ salary, and these should be stable regular earnings, not casual or periodic. A novice should understand: if the bank goes bankrupt, the state will return some guaranteed amount, but there are no guarantees on stock exchanges where trading is conducted, including in securities, and where you can easily lose everything. So, let’s wrap up! Save up money for living and unforeseen expenses first. Prepare a “safety cushion” and then start investing, and start with an amount that you don’t mind losing.

Out of this logically follows the fifth rule: do not invest other people’s funds! If you are already an experienced investor who knows the trading system of the exchange, is aware of possible risks in the real estate market and investments in securities, successfully earns through a variety of types of business, then perhaps the risk is justified if it comes to large loans “for the sake of the future.” But only in this case. If you are a novice investor, you should never make investments using someone else’s money for the first step in this business. Any professional will tell you: in the world of investing, you should feel free, take bold steps, retreat and move forward again. But if you invested the last of your money, especially the money of other people, the psychological burden will put pressure on you, and this hampers the work. 

The sixth rule. If someone promises you that your earnings from investing will reach 300% per day – don’t believe them! The internet is packed with such (and even more seductive) promises. Often somebody calls you: “Do you want to earn 500% per day from a deposit – we will help right now”? Recently, promises like this have cropped up related to trading on the stock exchange. It is important to understand that only charlatans offer gold mines in trading on the exchange. Trading on the stock exchange is undoubtedly a good business and deserves the attention of a novice investor, but a responsible broker warns a client of the risks. Miracles, of course, happen – and you can suddenly receive exceptionally high interest on deposits, but usually, it’s not 500%, but closer to, say, 30%.

Never be afraid, but act with caution

The seventh rule. If you don’t want to lose everything, then don’t invest all your money in one enterprise. If you decide to invest in stocks, purchase securities of the companies representing various areas. If you have to get rid of one company’s stocks, and you lose on this, then all the “minuses” can be covered by growth in the value of the securities issued by other enterprises.

The eighth rule. Develop a strategy. It is believed that the easiest way is to buy securities, and later sell them for a higher price on the stock exchange. Please note that before entering the stock exchange you will need to formulate your strategy and adhere to it strictly.

On your own, or better, with the help of a person more experienced in the investment system, you have to develop a certain style on the stock exchange: what assets you intend to trade, how often you will sell and buy, by what principle you will make certain decisions. There are a lot of strategies. For example: having a certain amount of assets that you are ready to invest for a given period, you set the maximum amount of losses. Based on this, you are looking for a company whose shares you can buy. Say, assets are shares of an engineering plant, the period is one year and the amount of losses is 20%. Then, if the shares of this company fell in price by 20%, you will immediately sell assets, even before the end of the year.

An experienced broker will always advise you to constantly increase investment capital. In other words, you start with a small amount, but gradually increase your investment capital, contributing 10% of the revenue. As a result, you will receive, in total, a higher percentage of the total deposit sums.

Rule nine. When working in the investment field, you always keep a cool head. If you act impulsively and hastily, then you can make many mistakes. You purchased shares – and then decided to trade (yourself or through a broker) on the stock exchange. For a novice investor, the operation of the stock exchange can seem chaotic. And in this chaos, you need to keep a cool head. Firstly, one should not react dramatically to the slightest price movements on the exchange and insignificant drops. You have to act vigorously when the stock prices of the company in which you invested change significantly. And even then it is important to remain extremely calm. And you will feel calm if you define the “borderline of losses” for yourself. Say, when assets suddenly fell in price by 20%, then you need to sell shares: they say on the stock exchange that this way you “fix losses”.

Health is gold

Rule ten. Invest in what you can touch. Although now the world is becoming more virtual – and even trading on the stock exchange with purchases and sales of shares is carried out on the internet – many professionals will confidently tell you that “physical things” are more valuable in the material world than those from the electronic world.

Many people hold the opinion that, for example, real gold bullion in a bank cell is more valuable than an impersonal metal bank account; and that several apartments in different cities bring more financial stability than cryptocurrencies in virtual wallets. Sufficiently big investors never limit themselves to investing only in securities on exchanges, but also they invest in what is “touchable”. The profits from real estate could be less high compared to stocks, however, the risk of loss is less than losing everything on the stock exchange.

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