Ground Rules for Successful Investing

Not so long ago investing was easy. There were few places you could invest in and if you had money you wanted to invest, you often left it to the professional stock brokers.

However, deregulation in the financial markets has changed all this. In the past 20 years new investment products have been launched, changes have been made to the tax systems and retirement plans which have changed the attractiveness of many investment products.

Up to about 20 years ago, share investing was only in the domain of the wealthy. For most people it was difficult to trade in overseas stock exchanges and there was no such thing as cash management trusts, instalment warrants, exchange traded options, dividend imputation, reset preference shares and endowment warrants - to name but a few.

Now about 50% of investors are “mother and father” investors who either own shares directly or do so in managed funds. Unfortunately, in recent years many investors have been "burnt" because they didn’t understand the risks of investing in financial markets.

Governments around the world have made it clear that it’s important for people to take control of their own financial futures. The sustainability of government funded pensions is also under pressure. If you don’t save and invest, you will be likely to suffer a significant decline in your retirement living standard. The average life expectancy is about 80 years, so if you retire at 60 years of age, the savings you have accumulated in the 40 years of your working life will be needed to fund your retirement for 20 years or more.

Deregulation of financial markets, interest rates and currencies means that the market determines the value of investments and not the government’s decree. This does provide opportunities for educated investors to build wealth and for unwary investors to lose wealth. You must therefore understand the opportunities and risks.

The ground rule is that if you want to be a successful investor in financial markets, you must teach yourself about investing. Even if you put your faith in a licensed investment advisor, not all are that competent. It is therefore essential that you understand how the financial markets work so that you don’t put your hard earned money in the hands of an incompetent advisor who is only interested in the commissions available.

How can you tell whether a particular investment is right for you?

The only sure way is to become familiar with the language used in the financial industry and to have an investment strategy which is sound. Does this mean that you should keep your money safe by putting it under the bed or by keeping it in the bank? No - but you do really need to understand the risks involved and set ground rules for successful investing.

There are a few ground rules in investing that haves stood the test of time. With time, patience and effort you can become a successful investor in all the areas which are open to you. This will not come overnight and you’ll have to be prepared for that fact there will be times you lose money. However, perseverance in this case, is a virtue above all others. The road is not always easy, but then nothing worthwhile is.

Here are some ground rules for successful investing:

1. Be your very own investment manager. No advisor or stockbroker should really do it for you. Only you know what your real needs are, what your temperament is - and only you are motivated by your own best interests, not by sales commissions. It can also be more fun to do it yourself.

2. Confront risk and then reduce it by spreading your investments.

3. Try to take a contrarian's view to investment markets. That is, look for opportunities and then do the opposite of what everyone else is doing.

4. Don’t be put off by investment jargon. Try to master it instead.

5. Now is always the best time to start investing. Don’t wait for the markets to improve. If the share market is filled with gloom, that will be the time to buy.

6. Make good quality shares the basis of your investment strategy. Then you can take it easy when you invest in more speculative areas.

7. Always consider the tax implications of making investments but never let tax minimization be your main objective. The fundamental rule here is to think in terms of after-tax returns.

8. Keep up to date by reading the financial papers and by searching independent investment research websites.

9. Discussing investments can be stimulating. Condition your mind to talk to others about investing, especially people who are more experienced and knowledgeable than you.

10. Don’t be greedy. Discipline yourself to cut your losses with bad investments and cash in when you’ve made a reasonable profit.

11. Try to be patient. Rome wasn’t built in a day. Similarly, you may not become wealthy overnight, but you might be over time.

12. Never invest in anything that you do not understand. If a particular investment sounds too good to be true, then it usually is.

13. Pay yourself first. Most people invest money they have left over after having paid the bills. Allocate yourself the first 10% of your monthly income in order to build up your investment capital. By doing this you will force yourself to become an investor and the long term benefits will be enormous.

If you master these 13 ground rules, you’ll be a successful investor. You’ll be able to rival so-called professionals and will sleep easily at night knowing that money is the least of your worries.

Article Source: http://www.debtfinancearticles.com.

About the Author:
Elliott Dawson is a contributing real estate editor at http://www.debtfinancearticles.com/. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.