The principles of a good investment if you have an idea no thing about investing then you're probably aware some of the following principles but if you have no clue no worries we've got your back we'll share with you the most important principles that will guide you in making investment decisions which will keep your investing on point these investing principles are in no particular order but I believe the last few were the most important now let's begin
risk in return go hand in hand the ultimate principle of all investments is it risk and return are basically different sides of the same coin you see the higher the risk the higher the rate of return for example an investment that promises you return of over 20 percent of your initial investment will most likely have a higher risk compared to an investment that will give you a 10 percent return also keep in mind investments that substantially increase rapidly are very high risk for example let's say you invested in a stock that grew by 50 percent within a year which is a very good return on your investment now I understand it this is probably a very volatile stock and as quick as it grew it can come crashing down just as fast we will talk more about this later in the video risk in return like firing oxygen safe investment as we all now offers the lowest return for your money and most investors usually flock to these kinds of investments because nobody wants to lose their hard earned money however for a risk taker hungry for huge returns be safe investments aren't as appealing they prefer riskier investments and potentially huge upsides such as startups and IPOs with this in mind it's up to you to choose how to play your cards.
diversification is paramount one of the best ways to secure your money when investing and also guarantee a good return to diverse syfy your investment we all know that stocks are like roller coasters and they constantly fluctuate depending on market conditions and what's going on in the country this is why gurus in the investing industry usually advise people to diversify their investment portfolio this means you can invest in different asset classes such as bonds commodities stocks in different sectors such as tech energy healthcare and so on if you hate losing money diversification is your best bet to safeguard your investment while the same time growing your money you see by diversifying your portfolio you're insuring your investments against constant market volatility they can easily wipe out your money let's say if you out of the 5 stocks in your investment portfolio are performing poorly then the other 3 stock should cover the losses appear to leasing investments this principle ensures that you lower the risks of your entire investment
regression to mean is that thing this may sound a little confusing to some of you but it's really not that complicated it simply means that all the things in our world from average return on investments our O. line to average yearly rainfall usually returns to its historical averages let's say a stock has been performing extremely well for the past 3 years constantly giving investors in our ally of 28 percent or more annually while the average return rate for similar stocks is 9 percent while every investor dreams of a stock it will guarantee them year on year return rate of 28 percent or more just like in our example this almost never happens most stocks just like the one we mentioned before usually return to its industry average and historical yearly growth so although the stock did grow 28 percent or more each year for 3 years it will most likely return to its industry average of 9 percent when most investors are analyzing stocks they look at the most recent returns of an asset class rather than the past trends by doing this they are trying to foresee and predicted future performance because the regression to mean concept will take place stocks that constantly over. Perform for a couple of years will probably underperform within the next coming years it's almost impossible for an investment that has yielded modest returns historically say for the past 15 years to all of a sudden become a serious money maker.
investment costs matter all costs matter even that one percent B. could often go unnoticed many people don't pay attention to the small fees they're charging they should see a small one percent B. may not mean much when you do the math you'll be completely surprised just how much you could potentially lose let's say you're shopping around for a fund manager any fines you great choices one charges the 1.5 percent annual management fees any other charges 0.5 percent it doesn't seem like a big difference does right now it may not look like much but over time that small fee could result in you potentially losing thousands of dollars in the years to come it's believed that fund companies that charge more in fees have more money for research and the perception is they do a better job however research indicates otherwise investors to minimize all their cost you better overall.
have a margin of safety pricing value for your money will always matter when it comes to investing one of the best principles of the art is to have a margin of safety by this I mean purchase assets for less than their real value basically buy them cheap sometimes assets will be priced lower than their intrinsic value especially during a recession. Acquiring an asset at a low price for it below market price it's a great deal for an investor because the return on investment is almost guaranteed plus if for some reason he needs to get rid of the asset quickly then the margin of safety will protect the investor we all know circumstances can easily change in the financial markets financial markets are sensitive to multiple factors see what happened with corona virus within no time markets are plummeting all over the world.
asset allocation is key the way an investor devise their portfolio among different asset categories is key to ensuring returns on their investment this is where many investors fail as they put very little thought into their asset allocation strategy by investing solely in overvalued assets you're bound to experience lower long term returns the key is to always evaluate all categories underweight the expensive categories and overweight there's their bargain priced
have a long term mindset sure you can make a couple Bucks do speculative moves in the financial markets but most of the time you burn a lot of money trying to chase the next big way the true essence and beauty of trading is buying an asset at a favorable price and waiting for it to appreciate in value this may take a while that as Warren Buffett says long term investing is one of the most important investing principles as short term trading only we deliver returns or losses in the long run don't let fear greed take over your decision making process and let time do its thing.
hour of compounding if you're looking for exponential growth then you better take some time to understand compounding take the time to understand how it works and how you can use it to double up your return one of the most exciting aspects of compounding is the multiplying effect it has on your money over time instead of constantly withdrawing dividends leave the money there and watch just how much more you'll be able to make as much as compounding may be great it can also be detrimental reverse compounding can be devastating for example a 10 percent loss may only require an 11 percent gain to return to normalcy but it's 50 percent loss may require a 100 percent gain to get back to break even yeah I.
risk management nothing worthwhile in life comes without its fair share of risks and investing is no exception to minimize risk investors employ risk management strategies volatility in one 's portfolio is one of the leading killers they can wipe away your money in a flash it's a serious problem one investors are constantly trying to maneuver around especially in bear markets for those who don't know bear markets are the markets where share prices are falling which encourages selling so by managing the risk you will ensure you don't lose your money for volatility you need to run from portfolio volatility but embrace market volatility with open arms it is easy to control portfolio volatility but impossible to control that of the financial markets however with market volatility comes great opportunities be ready to take advantage of them at the right time be cognizant of the overvalued assets and also be flexible enough to move your money once the conditions are not favorable.
control your destiny you should be in charge of your money because no one will care about your finances as much as you do conflicts of interest fraud and absurd fees make self investing a very attractive option luckily today technology and the internet has helped in bringing down fees and all other transaction costs it also provides all the needed information to make the right investment choices there's never been a better time in history the now where you can be a self directed investor with very minimal effort instead of focusing on getting a fund manager or a financial expert see what you can do by yourself you'll be surprised at how much you can save on fees and transaction costs to you don't take it personal now just like everything in life you'll lose and when the thing with investing is you could either end up making minimal profits make a ton of money or at least in all the markets determine the return rates and they can either favor you or not favor you ensure you don't take any failure heart and be strong will to continuously invest your money never give up one continuously learn and research there's a lot of information on the internet use this info to learn new trends identify new opportunities and channels of investing your money most of the resources are free and some have a small fee continuously watch business news you understand what is happening and you'll soon become an expert investor all by your own accord so in summary one continuously learn if you don't take it personal
Post a Comment