There are a handful of rules for investors to keep in their mind for successful investing. Below given is the list of the nine considerations that we feel are most useful before you make investment decisions.
Rule 1: Know yourself
Quantify the risk which you are willing to take Consider the time horizon for your investments Set Various Financial goals
Rule 2: Devote enough time to make savings work for you
We work really hard to earn money & save. Our investments should also work hard for us. Saving is a good habit, but investing it in a wise manner will always help us create wealth.
Given enough time to make investment decisions, otherwise money will lie idle in bank accounts or get invested in products pushed by sellers.
Rule 3: Select the right asset class
Identifying the right asset class helps you achieve various financial goals. Different goals require investment to be made in different asset classes. Selection should be based on the time left to achieve the goal, potential to deliver returns and the risk associated with it.
Rule 4: Don’t forget to consider the impact of Inflation
Inflation reduces the purchasing power of money. It lets us know the expected return required to maintain the same standard of living. So it is prudent to invest your savings in that asset class which generates higher inflation adjusted returns.
Rule 5: Consider the impact of taxation
While identifying the right asset class, looking at the returns generated by a particular asset class will not suffice. It is equally important to look at the taxation aspect of that asset class to know the tax adjusted return. It is wise to compare different asset class on tax adjusted returns before taking investment decisions
Rule 6: Herd mentality
Most of us tend to do what others are doing. Financial markets are most reflective of the same. Do not get influenced by market behavior, don’t jump on the investment bandwagon when everyone is buying and don’t press the panic button when everyone sells into the market.
Rule 7: Don’t put all eggs in one basket.
Minimize risk by diversifying your portfolio across various asset classes. If we put all investments in the same asset class – and that asset class falls, then you are at a greater risk. But if your investments are well diversified across various asset classes than loss from one asset class can well be set off from the gain of other asset class.
Rule 8: Give enough time for your money to grow
You will be able to create wealth over long term only when you give enough time to the asset class to perform. “Compound interest is the eighth wonder of the world. He who understands it, earns it …he who doesn’t … pays it.” ― Albert Einstein. The best way to take advantage of compounding is to start early and have a higher time horizon
Rule 9: Review periodically
You should review the portfolio periodically and its progress towards achieving various financial goals. Review and maintain your desired asset allocation.