There are a lot of investing tips out there and a lot of people who will be more than willing to tell you where to put your money. So with that in mind, we wanted to write an article about the top 5 investing tips that will help keep an individual on track to achieving their goals when it comes to investing. There are so many distractions when it comes to investing, that an individual investor can easily get off course and end up losing all their money.
The stock market is essentially what many refer to as the “wealthy mans casino for gambling.” It’s talked about by many people, as if the stock market is a pocket drainer and impossible to play. There is some truth to this however it isn’t impossible to “win the game” so to speak.
investorsinvestingtips.com has put together it’s top 5 investing tips for anyone who is serious about investing and does NOT want to lose their money because they get distracted. Since we are talking about getting distracted, we have decided to put this tip at the top of the list.
Tip #1 – (Stay in your lane) Don’t let other people distract you from your goals and interests. Anyone who urges you to get in on an investment with them is probably just a distraction, unless the investment is something you are interested in and makes sense to you. This may sound like common sense and it is but it is also one of the easiest rules that is broken by investors time and time again. What do you mean exactly by “stay in your lane”? Think of being an investor as putting your money to work for you through direct investments with a company or through mutual funds for example. As an investor, one of the most important things you can do, is pick an industry that you are interested in and then narrow your industry down to a couple companies that you may be interested to invest with.
This is also called “a circle of competence.” If you don’t understand something, then you probably shouldn’t be investing in it. The reason you DON’T want to invest in something you aren’t interested in, is that you won’t watch your investment. It will be boring and seem like a chore when you have to read news on it or look at financial statements to get an idea of how the investment is performing. If the investment is something you may have always wanted to build a business around or have a strong passion for it, then it is going to be a lot easier for you to keep on eye on your investment.
Tip #2 – (Try not to Lose your Money) One of the greatest investors of all time (Warren Buffet) has emphasized this as his #1 rule to investing and it couldn’t be any closer to the truth as a guideline to follow for investors. Try not to lose your money. This simple tip may sound like an easy task but it is one of the most difficult challenges to face with investing. Past performance does not guarantee future results therefore we are listing this as tip#2. If you do not stay in your lane as mentioned in tip#1 than you are pretty much guaranteeing yourself future losses.
Tip #3 – (Know your tolerance for losing money) You may be noticing by now, a pattern starting to occur in regards to the usage of words in our tips. Do you notice that the word loss or losing money keeps coming up in our tips? Well it’s because the name of the game for investing is to KEEP your money and not lose it. You can get a return in the process of investing and if you do then more power to you. That is the main goal here and while you are trying to do this, know your personality. Are you investing for the long term or for a few year for income maybe?
Know just how you deal with losing money when your emotions are in play. A lot of people never understand this basic rule to investing and end up making investments when the price of their asset is overvalued. The most common scenario that plays out would be that Weeks, months or a year goes by and the asset price drops. The investor becomes worried or panics because his or her emotions set in from the feeling of losing money and they ultimately make the mistake of selling their asset and losing their money. A good question to ask yourself is…. what amount am I comfortable losing on my investment? Is it 100.00, 500.00 or is it a couple thousand dollars that you are okay with losing?
Tip #4 – (Understand that markets move up and down) Just understanding the concept of what comes up must come down, will help you deal with the emotional roller coaster rides from market volatility. This will help you deal with the urge to sell your asset when it starts losing money. Remember, that if the asset starts dropping in price and you do feel the urge to sell it’s just part of the overall markets moving up and down. Also remember tip # 3 and how it coexists with this tip and you will sleep much better at night when your investment does drop in price.
Tip #5 – (Pay attention to the price you pay for an asset class) These are words of wisdom from another famous investor who goes by the name of Jim Rogers. When you are investing in a asset, the asset itself is going to be part of an asset class. For example, when someone buys gold, that is part of an asset class called “precious metals or commodities.” The price someone pays for gold could be considered too high of a price or it could be a bargain depending on the value of gold at that specific time and if the person buying the gold, sees the asset as undervalued based on the supply and demand of the asset. If someone bought gold back in 2003 when gold was roughly 417.00 per ounce and they held onto it until now, they would be able to sell their gold at roughly 1,200.00 per ounce and made a nice profit.
The price you pay for an asset can depend on many factors like supply and demand of a product, fundamentals of a company, fundamentals of the economy and underlying forces that drive the prices up or down in an industry. Prices change throughout time and if you can pay a price that is low compared to the value of the asset class, your chances of making greater returns increase over time. You avoid suffering greater losses because you bought in at lower prices on the asset.
These are just a few tips of many tips for investors. We put them in the top 5 because we felt they make the greatest impact on investors through out time. If you have other tips you would like to share, feel free to leave a comment in the comments below.