10 rules for small investors to keep in mind while investing

“An investor should act as though he had a lifetime decision card with just twenty punches on it.” – Warren Buffett

It takes hours of hard work, patience, and dedication to earn a good sum of money, but even a slight investment mistake can bring all these finances crumbling down. So, it is better to take on every investment as a decision that can make or break all your life’s finances. Instead of stashing away saved money in drawers, it’s better to sock away money in healthy investment plans that bring results worthy of the future plans. Here are my top 10 tips to achieve the best investment gains without major risks and pains:

Adequate planning reaps healthy investment benefits

When one is checking out the options to invest money in, they should first gain clarity about what they are investing for. Be it the house loan needs, or to meet the future expenses, once clear with the investment objectives, one can better make choices amongst other crucial factors like target return, time horizon, and risk appetite. Considering all the factors, the asset class best suits the aims and objectives of small investors.

Understand clearly to invest wisely

Investment doesn’t occur in a click – instead, it is part of a strategically planned and disciplined approach. No matter how big or small amount one is pitching in their investment plans, to gain good returns, the prime need is to gain a clear understanding of the plan in which they are investing in. Always do good research and stick to only those plans that deliver clear understanding matching the mindset and intellectual level of you as an investor.

Don’t pitch all the funds in one plan

Diversification is the success mantra of all investment strategies. If one has funds, one shouldn’t just flush out all of them in a single plan. Instead, study out all diverse sectors available to you and then invest some percentage of your funds in the varied options available as per your choice. A diversified portfolio cuts down the risks of complete loss and ensures something trickling into your savings pot always.

Stay away from the market hype

In the trading market, more than the truth, it is the hype that circulates and traps most of the novice investors in its vicious circle. Instead of trusting and falling dangerously, it’s better for the investors to do their research and always stay alert to the potential for mishaps and market chaos. Even the seasoned investment market experts suggest that to get the best long-term returns, investors should sell stock everyone is talking about. Try, instead, investing in that that has largely been ignored, but holds valuation that is right and growing, along with meeting the quality checks and risks adequately.

Timing the markets is a myth – don’t try it

The stock market has an erratic nature, and one can’t adequately predict its timings. Some might adequately have right predictions once or twice, but not always. A majority of investors do the extreme opposite and have a misconception that they can time the market ups and downs timely and adequately, thus losing their hard-earned money in the process. Timing the markets is a myth, and nobody has ever done that. A sound investor avoids such mistakes as instead of making more money, it forces people to lose out more money.

Be disciplined with your investment approach

Irregularity is part of everyone’s life, but it is the discipline and stringent dedication that help tackle life smoothly. The volatility in the investment markets has even resulted in a great slowdown for investors, despite having great run scores. However, those working with a systematic approach of pitching in money held the right investments and earned judicious returns with time. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping the long-term scenario in mind.

Don’t let emotions overshadow your judgments

The trade market is the place with the least scope for emotions, especially of fear and greed. There have been many instances where quite a lot of investors faced hefty losses only due to their inability to control these emotions. It is true that the lure of making quick money can’t be resisted at a time when one starts hearing fabulous stories of investors making it big in a short span of time. This opens up the space for speculation, which further pushes the investors into buying unknown shares without thinking twice and falling out badly the moment the market changes its mood.

So, it’s advised to avoid making a go in speculation, and instead do research work to earn some healthy investment returns.

Get realistic while expecting

Hoping for the best from investments isn’t wrong, but what’s wrong is expectations held high based on unrealistic assumptions. Several stock market studies reveal that earning more than 12 percent return is an alarming reminder that there are losses lined up that would likely be much heftier than what the investors have earned. Therefore, while stepping into the investment market, one shouldn’t expect the same kind of returns always.

Invest only the surplus

When starting with investment, one should flush out the surplus with the necessary backup kept safe and steady. It is not necessary that if you aren’t losing it now, you won’t be losing it in the future too. Hence, it’s advised to pitch in the surplus so that even if the investments go wrong, one has a backup to keep their life steady and moving. Otherwise, bankruptcy has a habit of knocking in the worst situations. Remember – instead of losses, profits can occur too, so take risks – but with care.

Monitoring is the key to leading

With boundaries around nations opening up and all marketers coming together to form a global village, any important event that takes place in any part of the world heavily affects the financial markets of every nation. Hence, it’s important to stay updated with all sorts of global events, and constantly monitor the portfolio and keep inculcating the desired changes in it. If one isn’t sound with the skills required to review the portfolio, then it’s better to hire a good financial player instead of waiting and repenting later on.

Rachit Chawla is the Founder and CEO of Finway Capital.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)