Ok, before I start this post on successful investing principles, I want you to know that I’m not a financial adviser, so anything you read should be backed up by your own research. This post is for educational purposes and not to be confused with advice.
Remember that with investing your money can go down as well as up, so use money that you don’t need to rely on for at least 10 years (if not more!!).
What Are “The Rules”
I have pulled together these investing “rules” from different experts in the field. I believe that any savvy would-be investor should have a sound basis for how they decide to use their money, and these are the ones I just happen to resonate with. There are plenty of others that you’ll be told throughout your time doing this, but eventually you will pick out your own to follow.
Rules give you a framework to work to. When you start to deviate from them, it may be that emotion is starting to get to the better with you, so you can always check in with them to stay on track.
Let’s go through the successful investing rules!
Debt vs. Investing
The bulk of your cash should be spent on paying off consumer debt if you have it. BUT you must dedicate some money to investing to train yourself into the habit of “paying yourself first” AND to get yourself in the market. Time is of the essence so that you can have compounding work for you as soon as possible. I think it also provides LOADS of motivation because once your debt is paid – you’ll have loads more to invest!
Leave your emotions out of it
Investing emotionally is a sure-fire way to fail. Investments should be numbers driven only. So don’t be emotional! Yes, the stock market goes down, but it does recover given time! If you have a well-diversified portfolio, you have nothing to fear. Leave your investments alone, and take advantage of dips in the market – that’s when the sales are on!
Check your investments rarely
There is no point in checking your investments too often. Once a month is the limit (ideally less). Even then, you’re not authorised to do anything for at least 1 year! This is so that you don’t freak out when things look like they’re not working. If you have a strategy that you want to stick to, then rebalancing is necessary after 1 year (some people do it at 6 months). This is so that you don’t end up with too many shares in one place and knocking yourself off of your strategy.
Successful investing needs diversification. Keep your investments well spread around – country, sector and type ideally, but if you’re just starting out, an index tracker is a PERFECT starter for this.
Investments are for the long haul
There is no point investing for only a year. Investments need time to recover if/when they decline in value. Look to invest for at least 5-10 years, but ideally for life. You can release the money in stages when you need it later and still leave money in to keep growing. That’s how you make a sustainable retirement fund.
Do not take money out
For successful investing, once the money is in your investment, you are not allowed to take it out. Look at investing money as sacred. It is to be protected at all costs because this is your future retirement fund. If you start nibbling at it now it will ruin all your good work – a bit like taking a cake out of the over before it’s done!! It’ll just bit a flat, soggy mess.
Use up your tax-free accounts
In the UK, this would be something like an ISA. In 2020/2021 you get £20,000 for the whole year. Your goal is to fill this up as much as possible, because everything held within the ISA grows TAX-FREE. What if you already have a cash ISA? No worries – you can transfer if into a stocks and shares version very easily. Those who are self-employed (so without workplace pensions) can take advantage of SIPPS. These aren’t tax free, but do provide some tax-saving allowances that you can use to reduce your tax bill!
Take advantage of pound-cost averaging
Invest the same amount every month, and you get to take advantage of this phenomenon. Lets say you have £100 to invest every month in a particular stock. Some months your £100 buys more of it, and sometimes it buys less depending on how the market is doing. If you buy £1000 in stocks in one go, and don’t spread it around, then you don’t get to take advantage of when the market drops. Drip feeding into your investments is a smart way to make your money go further!
Choose accumulation options every time for growth
While you’re building your retirement pot, it makes sense to have investments that automatically reinvest themselves. This means that you’re building growth on top of growth that strengthens your compounding efforts!
Keep ongoing charges below 1%
Ideally you can keep it way below 0.5%, so make sure you shop around and factor in everything from the cost of the platform you use and the funds themselves. The fewer charges you have, the more money your money goes into your pocket.
And that’s it – the “rules” for successful investing.
Do you have any others? Share with us in the comments!
When you start to do this, sticking to a strategy and to “the rules” won’t 100% take away the risks, but it will certainly keep you safer than not having a proper strategy in place at all.
Good luck, and if you want some support with investing, become a member of The Prosperity Plan Academy and I can help you.
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