Category

investing

Category

When it comes to investing, there is a lot of information out there. How exactly do you become a successful investor and what information should you follow? After reading through a lot of the advice, I came up with 4 rules that seemed to be prevalent with investing experts.

And when I say investing experts, these are people who have been successful investing money over the long term. Think Warren Buffett.

In this post, I am sharing with you these 4 timeless investing rules that you should always make certain you are following. They will always apply, no matter what is happening in the market and they will always serve you well.

Let’s get started.

4 Simple Investing Rules To Grow Your Wealth

#1. Keep Your Emotions In Check

Hands down the most important rule to follow is to keep your emotions in check. The more you can do this, the less likely you will make a decision based purely on emotion. When you make decisions based purely on emotion, the majority of the time it ends up bad.

But how do you keep your emotions in check when investing? After all, we are talking money here and it can be very emotional to see your wealth drop or rise.

There are a few ways to keep your emotions in check. The first step is to create an investment plan, regardless if you are a beginning investor or a seasoned investor. Your plan will outline why you are investing and what you are investing in. When the market drops or rises, instead of going on emotion, you can look back to your plan to help you make a decision.

Another way to manage your emotions is to make sure you have the correct asset allocation for your risk type. When you are invested in a way that meets your needs, you should be able to sleep at night. Your portfolio, while it will rise and fall, should not be so volatile that you cannot handle staying invested.

#2. You Can’t Time The Market

Another investing rule to follow is to know that you cannot time the market. This means that you will never be able to consistently buy at the lowest point or sell at the highest point. In many cases, when the market is dropping, investors hold on too long and sell out at the bottom.

On the other side of the coin, when the market is rising, most investors get greedy and don’t sell at the peak. They instead hold on, hoping for more growth. But the stocks tank and they lose their gains.

So if you can’t time the market, what are you left to do? If you have a long term view of the market, it really doesn’t matter when you invest. The key is to just start investing.

If you are invested already, set a limit for when to sell. If the price of the investment drops by 10%, that is your sign to sell. You can do the same for gains as well. If the price of the investment rises by 15%, that is your sign to sell.

#3. The Market Is A Cycle

The next rule to follow is to understand that the stock market is a cycle. It rises for a bit and then falls. Then it will rise again only to fall again. Your first question is probably about wanting to know when this happens. The answer is to refer back to the point above.

You don’t know. No one does. All of the headlines you read about the market cratering or rising to 50,000 are just guesses. Most times these people predicting the stock market are trying to sell a book and this is how they get their name in the media.

For reference, you can look at this guide for how long a typical cycle lasts. But again, it varies and you will never know for sure.

#4. Trading Costs You Money

Finally, you have to know that trading costs you money. Every time you buy or sell, you are paying a fee and someone else is making money. The more you trade, the more you spend and the more money someone else makes.

Who is this someone else? Wall Street. They hype up the market and try to scare you when it is falling. The better job they can do of this, the more likely it is you will react emotionally and buy or sell. And then they make money.

What do you do about this? Again, have a long term plan. When you have the itch to buy or sell, refer back to your plan. This will help you to make the best decisions for you and your situation.

From there, just knowing that Wall Street wants you to trade is important. You can assess this when you hear the latest news. Ask yourself if this is relevant or just hype to get me to sell or buy?

Most investors are best served buying and holding mutual funds for the long term. Simply find high quality, low cost funds and keeping adding money into these funds for the long term.

Final Thots

If you can follow these 4 investing rules, you can have success in the stock market. They are simple in concept and some are easy to follow. But others, like keeping your emotions in check will take some work on your part.

But if you can follow all of these rules, you will see your wealth grow through investing in the stock market.

Author Bio: Jon blogs at Penny Thots, a personal finance site that helps readers improve their finances one day at a time.

A lot of people made a great deal of money on bitcoin and other cryptocurrencies in 2017. With values skyrocketing throughout the year, those who might have invested years ago (or even early in 2017 for that matter) had the opportunity to cash out and make large or even massive gains. Now, there is such a thing as a “bitcoin millionaire” or “cryptocurrency investor,” and some of them are starting to give advice about how much ought to be invested in bitcoin moving forward.

It’s a good idea generally to read some of that advice before making a decision to invest. Remember that bitcoin is a brand new commodity and there’s really no such thing as an expert at this point. It’s a difficult asset to predict, and even those who have traded successfully can’t be sure of what’s next – which is to say no one voice is fully trustworthy. But as with any other investment it’s vital to educate yourself on the different possibilities and the key factors involved.

Strategy aside however it’s also important to learn how to invest in bitcoin, since it isn’t exactly an ordinary asset or commodity. Buying bitcoin isn’t like buying a stock, or even trading in gold or oil. The buying and storing processes work differently, and require a little bit of education.

There are actually different ways to buy bitcoin, and one of the most comprehensive overviews actually comes from a gaming site (because bitcoin has become a preferred method for a lot of online gamers to pay for play). This overview is worth a read, but points out that there are several ways of acquiring bitcoin, including purchasing from friends or family, using a direct bank transfer, or perhaps most commonly, by registering with an exchange. You can also mine for your own bitcoin, meaning you’re acquiring it as soon as it goes into circulation, but this is a complex process that demands expensive, high-end computing equipment. The easiest way to buy bitcoin if you want to so it right away is to register with a popular exchange like Coinbase, which allows you to use bank transfers, credit cards, or deposited cash to purchase cryptocurrency directly.

As to how you actually store bitcoins, you’ll need to familiarize yourself with the idea of crypto wallets, because they’re really the only way to do it. It’s important to recognize as you get into the process that bitcoin isn’t a tangible asset, and you never actually possess it in the traditional sense. It exists online, and what you buy is access to it, in the form of digital codes. Wallets store these codes in different ways. Bitcoin wallets can either live on your computer and/or mobile device, on a physical gadget, or on a piece of paper. Put more simply, there are software wallets (computer and/or mobile device), hardware wallets (gadgets like USB sticks) and paper wallets (literal pieces of paper that contain your digital keys). There are pros and cons to each option concerning security and ease of use. Some might argue that hardware storage is best for long-term investment because it store
s bitcoin offline and free of hacking concerns – but this opinion is subjective.

That explains the basics, regardless of actual strategy for whether or not it’s wise to buy in. It’s a different sort of investing practice, but one that’s actually reasonably easy to get the hang of once you understand the core concepts.

As said in a famous saying “give a man a fish, and you will feed him for a day. Teach a man to fish, and you feed him for rest of his life”. Likewise in my view it is important to know how to select mutual funds rather than knowing about the best / top mutual fund names you can choose today. There are tons of free food available over the web (just Google for “Top 10 Mutual Funds to Invest“), but how do you know the value of the content? For that you should have to know the basics of picking the mutual funds and will you detailed step by step procedure that you need to follow for selecting mutual funds.

First things first, you have to be clear about your goals and the need for your investment and its better to have the clarity on the following things before you start the process.

Why Should You Invest?

The purpose of the investing should be known to you, investing just for the sake of saving may not for you. Please think and list down your goals, calculate how much you need to invest every month to reach your goal, how long you should invest and the expected returns (please be conservative in assuming the returns for equity mutual funds (you can assume a higher return between 15% to 20% while calculating your returns but you should also have to be prepared for 50% downfall (there are chances!) in the market just before or even worse in the year when you are expecting returns, So I would suggest you to be in pain now rather than being sorry in future. I would personally consider 12% as expected returns from my personal portfolio and would treat anything above that as a bonus.)

What is Your Risk Appetite?

Ask I have asked above check how comfortable can you be if you see 15-20% negative returns in your portfolio. Equity mutual funds will be aggressive in nature and likewise the returns will be. Although it is safe to assume that you will see returns in the range of 12% if you continuing for long term (read >10 years) but nothing is certain in life.

What Should be Your Asset Allocation?

Based on your risk appetite you can choose your asset allocation, general thumb rules practiced by financial blogger or advisers in the market is to be in equity for the percentage of 100 minus your current age, for example if your 30 years old your asset allocation should be 70% in equity class assets and 30% in debt assets. Choose the one you are comfortable with, after all it is PERSONAL finance and should be personalized.

How Many Funds Should You Invest in?

There is no thumb rule that tells us about the ideal number of funds you should have in your portfolio, for many even a single equity diversified mutual fund have worked well but if you ask me personally it is good to have minimum of 2 mutual funds from each category (equity / debt / hybrid / etc.).

Once you have settled with the answers for the questions asked above you can go ahead and start the process of choosing the Right Mutual Fund for you.

For the sake of simplicity I am going with ValueResearchOnline website for comparing the returns of mutual funds, you can feel free to use MorningStar, MoneyControl or any other website that you are comfortable with. The steps that you should follow should be same only that the options that you should select will vary as per the website that you choose.

Note: For the sake of an example I am considering “Equity – Multi Cap” fund category in this tutorial, please free to select the category of mutual fund of your choice to shortlist mutual funds.

Step 1: Go to ValueResearchOnline and navigate to Funds and select Fund Selector. Refer screenshot.

Step 2: As I am not obsessive with fund house I am leaving the fund house field unchecked, under fund category I am selecting “Equity – Multi Cap” (refer my note above) and finally in the field Exclude close-end, Plans Suspended for Sales, direct plans (I suggest you to go for direct plans, excluding this category to avoid duplicates and also there is no long history for direct mutual funds is available as they are introduced only on January 1, 2013.) and uncheck 3 star, 2 star, 1 star and unrated. Now click on GO.

Step 3: In the results page, click on returns tab to look 1, 3, 5 & 10 year returns of the funds for more insights.

Step 4: Filter the 5 year returns in descending mode by clicking on return under 5 year category and 10 year returns in descending mode by clicking on return under 10 year category, shortlist top 10 from each of these 2 categories. You will be left with less than 20 mutual funds (as there will be few overlaps) from the ocean of mutual funds.

Step 5: Now click on Risk Stats on sort the returns by Standard Deviation (lower is better), Sharpe Ratio (higher it is better), Alpha (higher is better) and make a note of these ratios for the funds you have shortlisted in the earlier step.

Step 6: Check the expense ratio of mutual funds under fees & details and make a note of them in a separate tab.

Step 7: This is where we will be making out our selection of mutual fund, sort out the results you have shortlisted by Standard Deviation, Sharpe Ratio, Alpha and finally by expense ratio and select the number of funds based on the decision you have taken earlier (can 1, 2 and never more than 3) and start investing.

I will post about the funds I have shortlisted but that is feed for another post and I will update this article once I have published it.

Between Us: Please let us know your views on this exercise of choosing the best mutual fund with conviction and in case if you are already a mutual fund investor please tell our readers about the process you have followed to select the mutual funds that you have invested till now.

Please share your feedback and additional inputs on this process so that we can fine tune the mutual fund selection methodology which would benefit each of us. Wouldn’t that be a win-win situation for all?