10 Investing Rules Everyone Should Know

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10 Investing Rules Everyone Should Know

Investment can be scary. There’s no arguing that. But there is an intelligent balanced way to approach investment that helps you reach your goals in a passive, low-impact way — one that makes the money that was otherwise just sitting there into a new stream of income. Even if your first step is simply emailing an HR person to ask a few basic questions, it is important that you start. There is no magic key that makes someone “an investor” or “not an investor”, the information is available to all of us. We can all decide the kind of portfolio we like to have, and the future we want it to create for ourselves — as long as we ask questions and pay close attention to the answers. Come armed with goals you want to achieve and how you’re comfortable with achieving them, and get started.

Here are 10 investing rules everyone should know.

  1. Money is a tool, not a goal. When you’re clear about this, you’ll make a million small financial decisions differently, enabling you to better work toward reaching your goals. Take some time to define what you personally want to do with your money in the future.
  2. Amass an SOS fund. Before you even think about investing, you need to have an emergency fund of at least six months’ worth, tucked away in an untouchable cash account that you’ve labeled as your Save Our Souls account. Investing without a healthy cash reserve is similar to driving a race car without a seat belt. Smart people don’t do it.
  3. Learn basic financial terminology. Move beyond memorizing words and learn to understand the terms used within a financial story. All assets (stocks, bonds, real estate, or partnership interest) have a financial story. As an investor, you’ll need to define the stories and validate whether they make sense.
  4. Get comfortable with basic accounting and get used to working with numbers. know how to assess the three tells of a productive asset: the income statement, balance sheet, and cash flow statement. The knowledge you gained from this will pay off for years in return. it will change the way you look at any stock, bond, piece of investment, property, or even ETF. Those who put in the work reap the rewards.
  5. Open retirement account first: 401(K)s, Roth IRAs, and traditional IRAs. Take advantage of employer-matching 401(K) programs that literally offer you free, pre-tax money. Since investment money compounds, any additional small boosts of funding at the start can make a big difference over the long run.
  6. Where possible, build your passive investment income stream next. Focus on building a portfolio of investments that allow for a regular, passive income that can support your desired lifestyle, regardless of what happens in your career. It’s a lofty goal, but you’re truly wealthy when your investments can fund your living expenses and you are no longer dependent on your salary or wages.
  7. Forget the traditional rules of asset allocation and invest according to what you know. The best investment will be the ones you can live with in terms of risk and reward. this requires getting really comfortable with who you are. You don’t need to invest in aggressive equities just because you’re young. You can buy bonds, reinvest, and do very well. On the contrary, you don’t have to buy bonds when you’re older if you’ve already created a solid stream of passive income from previous investments.
  8. When investing in a business, properly assess its financial strategy. In other words, figure out how a business can make a sustainable profit, not just sales so that as an investor, you can receive returns through either cash distributions or dividends.
  9. Don’t take your investment failures personally. Investments are like bets in nature, not sure things. The best investors know this and try to learn from the choices they made that didn’t work out.
  10. Be patient. Investing will test you, wear you out, make you grow, and change you. Trust in the process, and make your big decisions based on the long term. You’ll need to stay true to your vision in order to realize it.

That’s all for now, my friends. See you all in my next article.

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