7 GOLDEN RULES OF INVESTING YOUR INCOME

  • Post category:Investment
  • Reading time:8 mins read

Every day, we hear cases of people losing their hard-earned money because they made investment decisions carelessly. Many people just invest without understanding the base rules of investing.

Many people save money for many years only to lose it in fraudulent or loss-making investment vehicles.

Just imagine waking up early in the morning and going to bed late every day for 10 years to save something and then you lose the money through one poor investment decision?

This can break you no matter how strong you are. You have sacrificed so much to put away money in a savings account. You have denied your family a good life promising them a better one in the future and now, everything is gone.

These scenarios are very common. They happen every day. Thousands of people regret making investment decisions every day around the world.

Losing money is normal in the investment world. If you have never lost money, it means that you are not a serious investor. This is because losing is part of gaining.

I have lost hundreds of thousands in the investment world. This is not because I was not careful but because I made moves. I took the initiative to invest and I lost.

These are just a few scenarios. I have also made many good investments are reaped big. These gains have overshadowed the losses over time.

If you know what you are doing, the investment world will favor you.

Do not listen to all those risk-averse individuals who never do anything because they fear losing money. That is not the mindset of success.

Success calls for high risk because high risk equals high reward.

However, your risk has to be calculated. You do not just throw your money anywhere and anyhow and expect to win. You have to make educated decisions when investing.

1. Never invest in anything before you invest in yourself

This is the cornerstone in the world of investment. You cannot afford to remain illiterate when it comes to investment.

When you listen to the greatest investors like Warren Buffet, you will notice that they have a sea of information about the area of investment. This is what they use to craft investment strategies and tactics.

They do not just understand key financial definitions but have gone ahead to master the topic more than all of us. This is why they win more than all of us.

You need to develop your financial and investment intelligence before you start injecting cash into different projects. If you do not, you will lose everything.

One can do this by taking an investment course. Also, one can take certified financial analysis (CFA) courses or enroll for a diploma or degree in a local university.

You can also read books on the topic to gain more understanding. Books are written by experts and can be very insightful in your journey.

The intelligent investor by Benjamin Graham and Rich Dad Poor Dad by Robert Kiyosaki are good books to start with. We will give you a full list of these books in subsequent articles.

You can also make use of the vast information available on the internet. There are many blogs on personal finance and investment (This one is one of them). We upload new information every day.

The curse of formal education

2. Invest only in what you understand

There is a very high tendency of people just imitating what is working for other people. They think that because it worked for so and so, they should also put their money in the same project.

There is so much that goes into managing investment projects. You need technical knowledge to get success.

If you invest in stocks without understanding how they work, you will lose everything. You would rather continue investing in your area of expertise as you gain more knowledge in the new industry.

This is why investment focus is important; you get to become an expert at one thing at a time. After you become an expert, losing money will become rare.

3. Never put money in one investment project unless you are an expert

This is a mistake many people make. You should never put all your money into one project unless you are an expert in that area.

Many people lose money because they believed in a project so much and drained their bank accounts. They end up losing 10-years savings.

Before you become an expert at investing in a certain industry, you, always be paranoid and diversify. Diversification reduces the risk of losing everything.

If you put money into five projects, chances are that at least 2 or 3 of them will succeed. Even if 2 or 3 fail, the ones that succeeded will cancel out the loss to bring you returns.

After you become an expert, you can now start putting everything in one basket. Your knowledge and skill will have increased and losing will not be rare for you.

4. Never make emotional investment decisions

This is one of the most violated among the rules of investing. Sometimes, people become excited about an investment idea and they drain their bank account into it. They use emotions rather than logic when making investment decisions. This is how they end up losing money.

Investment decisions should be made logically and not emotionally. Emotional decisions lack rationale and logic. They are mostly based on mere excitement and not concrete reasoning.

Just because someone presented an idea in a motivating way does not make it a good investment decision for you.

There are many good salespeople out there who are so good at what they do that they can convince you to invest in something that does not make total sense.

They will excite you rather than educate you. After the excitement is over, you will come back to your sense but it will be too late. You will have lost money.

No matter who is urging you to invest, take at least a week to ponder over it. This will increase your chances of reasoning the ide out.

5. When the deal is too good, think twice.

This is paramount. It ranks high among the rules of investing.

When someone presents something too good to be true, there is a 99.9% probability that it is not true. Your instinct will tell you when something is too good to be true.

There was a fraudulent investment vehicle in our country a few years ago called DECI. They promised to give people 3 times the money they invest within a few weeks.

Many people invested everything they had to invest. They sold their land, cars, and houses to invest. For the first few months, people got 3 times what they invested.

The word spread and almost everyone in the region invested. After a few months, people walked to DECI offices and they were closed. This is where they realized that they had been conned.

Billions were lost through that fraudulent vehicle and that money has never been recovered. Many people killed themselves, others went bankrupt and many have never recovered from that financial setback to this day.

Always run away from investments that promise so much. They are mostly false. In any case they are true, they will fail because they are not economically sustainable.

6. Always do your due diligence

When it comes to rules of investing, this one is also key. When someone presents an investment idea, do not just take it. You have to do your research to understand how it works.

This research will help you understand what was never said during the presentation. As people present ideas, they only give the sweet part of it and leave out many underlying negative things.

Due diligence will help you unearth these negative things that were never discussed. You will have an opportunity to question and get clarity.

7. Give your investment enough time to generate enough returns

Time has an amazing impact on investments. This is the power of compounding.

Many great investors take a long position in their investment. This means that they do not buy today to sell tomorrow. They allow the investment to make them millions over time.

You can read our previous article on how to get free assets to understand more about how to treat assets that you get freely over time.

Conclusion

You cannot afford not to invest but you can also not afford to invest blindly. It is even more dangerous.

These 7 rules of investing will prepare you for the ever-competitive investment world. The world is full of many fraudsters and many who promise heaven but deliver hell. These rules of investing will give you the basics.

You have to be on the lookout to avoid losing everything you have worked so hard for in one day. It is not a good experience to go through.

This Post Has 2 Comments

Leave a Reply