Principles of Investing

Every Investor should know the investing basics. Seven fundamental principles of investing need to be applied by the investor at the time of investment.

Topics include knowing your current situation, investment goals and risk tolerance; getting your finances in order; thinking long term and focusing on stocks; researching and monitoring your investments; and knowing when and how to get financial help.

Start Investing Now:

We say this, not just to disagree procrastination, but an early start for investment can make all the difference. In general, every six years you wait doubles the required monthly savings to reach the same level of retirement income.

Another motivational statistic:

Some amount needed to be contributed by an investor, in every single month for nine years without lapse and nothing afterwards, or if the contribution is null for first nine years and then it is made for the same amount each month, for the next 41 years, Investor would have earned the same amount.

Know themselves:

Current situation, future goals and personality of the investor plays a vital role in taking right course of execution for investment

• Current Situation-It depicts the financial capability of the investor, which includes net worth, monthly income, returns, savings, mode of investment and expenses.
• Goals-It confirms the financial goals of the investor, and how much he needs for investment and to confirm whether he is going on the right path in relation with investment .
• Risk Tolerance-Investor should have risk bearing ability. The appropriate level of risk is determined by the personality, age, job security, health, net worth, amount of cash needed to cover emergencies, and the length of investing horizon.

Investment can be started in a reverse order. If investor doesn’t know, where his money goes each month after investing, there will be ambiguity in his mind regarding misplacement of his hard-earned money and he will not think to invest his money anywhere. Tracking the spending habits is the right cure to get rid of these types of ambiguousness from the mind of investor. Investor needs to relieve himself from the burden of debt, which can be credit card, or some other debts before going for investment. He should plan for post - investment situations, how much he can save every month and how much he needs to save to reach the desired goal.

If investor is transitioned from a debt situation to a paycheck situation to saving money every month situation, he will be ready to begin investing what he saves. Investor should start investing by amassing enough to cover three to six months of expenses, and keep this precious money in a very safe investment like a money market account or saving bank account, so that he can be prepared for an emergency.

Once the investor has saved for emergency reserve, he can proceed to high-risk investments, bond of money that you expect to need in next few years and stock mutual funds for the rest. Use dollar cost averaging, investing the same amount each month.
This is always a very good idea but there is a dramatic fluctuation in the share market in past 10 years. Dollar cost averaging will make the things easier for investment

Investors are warned, not invest in that shares, for which there is some ambiguity:

Develop A Long Term Plan:
Investor should know his current situation, goals, and personality very well. He should be pretty clear what his long term plans should be. Investor should know very well, where the money will go whether in cars, houses, college, and retirement. He should be well aware of the source from where money is received. Hopefully the numbers will be about the same.

Investors are advised not to time the share market. Get in and stay in. Share market conditions fluctuate in every minute. It is not possible for investors to predict where the share market graph diverts. That’s why he should be in touch with regular share market updates to avoid any mishappening.

Investors are advised to review the plans periodically as their needs and circumstances change. If they are not confident that their plans will be executed successfully, they need to talk to the investment advisor or some one they trust

Buy Stocks:
Investors have a long-term view, he analyse the risk before investing his money in riskier investments Investment requires patience and discipline and the investor who keeps patience after investment will be considered as winner in long-run. The vary approach of investor approach change the investment vehicles to two choices: stocks and stock mutual funds.

* Stocks: 10.2% (and small company stocks were 12.1%)
* Intermediate term treasury bonds: 5.1%
* 30-day T-bills: 3.7%

Investigate Before You Invest:

Always remain updated with share market prevailing conditions. Investigation needs to be done on particular sectors on which investment is planned. Don’t spoil the hard-earned money. Investors are advised to keep learning from the mistakes from their side and learn from other’s mistakes too. Investor should understand how much investment could be suited according to his portfolio with overall strategy. Gather Accurate and Objective Information related to investment. Investors need to be cautious while evaluating the advice of anyone with vested interest.

If an investor is planning to invest in shares of the company, all the information related to the company need to be collected and analyzed properly before investing the hard-earned money. Investor is advised to join the investment club or an organization like American Association of Individual Investors. Investor needs to analyse various strategies before investing money in share market.

Try a momentum portfolio, a technical analysis portfolio, a bottom fisher portfolio, a dividend portfolio, a price/earnings growth portfolio, an intuition portfolio, a mega trends portfolio, and any others he thinks of. In this process investor will trace which portfolio fits for him. Investor is always recommended to learn from the mistakes committed from his side and also advised to learn from mistakes committed by others

Develop The Right Attitude

The following personality traits will help you achieve financial success:

Discipline: Develop a plan, and stick to it. Thus as you continue to learn, you'll be more confident that you're on the right way. Alter your asset allocation based on changes in your personal situation, not because of some short-term market fluctuation.

Confidence: Let the intelligence of investor make the decision regarding investment. Investor needs to be prepared for losses and bear the loss as sometimes business tycoons also invest and lose their money. Investor are advised to update his strategies according to the prevailing market conditions and don’t even dare to guess the strategies which can lead to their downfall .

Patience:Investors are advised, not to rule their emotions by current performance Investors doesn’t even watch day-to-day performance, unless he wants to do that. Investors are advised not to get pressurized for investment for which he is not clear with and is not comfortable with investment situations

The following personality traits will hurt your chances of financial success:

Fear: If investor is not willing to take any risk as he is not prone to risk –bearing, he will stick with those investments which barely beats inflation.

Greed : As an investment class, 'get rich quick' schemes have the worst returns. If your expectations are unrealistically high, you'll go for the big scores, which usually don't work. For investors ‘'get rich quick' will have worst impact on their financial conditions. Investor’s expectations are unrealistically high, he will directly opt for bigger scores, which don’t work and can have adverse impact on investor’s financial conditions.
It is generally a good idea to avoid making financial decisions based on emotional factors.

Get Help If Needed:

Do-it-yourself approach’ does not regularize with every investor. If investor tries to invest and things are not going his way, he would give up and never try to invest again, or it may be possible that he don’t have time to start all over again. Investor is advised to meet any professional and take his assistance and tips related to investment. If investor wants that some other person need to take care of his financial affairs, he also has to be involved upto some extent and remain updated with share market fluctuating conditions Investor has to make sure that his money is being spent wisely