Smart Investment Tips
I have spent several hours for the last few weeks to compile some smart investment tips from some books, articles, blogs and my own experiences. It may not be a complete set of investment tips or rules but I believe they are essential for your successful investing. To grow our wealth and be prepared for inflation, it is important to have a great investment plan. We must make sure our money work harder for us and one way to increase wealth is to invest. There are basic rules and tips that are generally accepted to lower your risk of losing money. I would like to emphasize that by following the investment tips outlined below, there is no guarantee that you will always get a positive return. The below recommendations are just for your references.
Smart Investment Tips
Net Worth Mentality
Net Worth Mentality instead of Paycheck mentality, people with paycheck mentality spend all their net incomes and nothing left at the end of the month for investment. People with net worth mentality focus on building net worth over a long term. The keyword here is Net Worth, it is simply how much a person is worth, minus the liability from the total assets. Even if you have a big monthly paycheck, your net worth will still be zero if you spend every cent of your net incomes. We are recommended to change our mindset from paycheck mentality to net worth mentality.
Start Early and Invest Regularly
Start early and invest regularly, saving is the key to wealth and it is the starting point of making an investment. Save money to invest. Due to the power of accumulating or compounding, starting early makes a huge difference. Money needs time to grow and it is always recommended to start as soon as possible. So, why wait? Start injecting your savings for investment.
Diversify Your Portfolio
Diversify your portfolio, the old saying, “don’t put all eggs in one basket”. One should try to find investments that move in the different directions (risk). That means to try to mix the stocks and bonds with different risk levels, spread your property investments in different locations, spread the business investment across different customers and use different affiliate programs, and an advertisement associated programs on website monetization.
Review Your Portfolio Regularly
Review your portfolio regularly, some asset classes perform better than the other at a certain time. For example, during a stock booms, equity funds normally perform better. When it happens, sell some equity investment fund and allocate the money in other asset classes that are not performing as good as stocks. This is the fundamental rule of “Buy low, sell high“. That’s exactly what smart investors always do. By doing this, you simply rebalance control risk and it may reward you with higher returns.
Good Track Record Does Not Guarantee Positive Return
Good track record does not guarantee a positive return, “I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two. Warren Buffett”. Past record provides you a reference, but it does not guarantee positive gain. A logical alternative is to structure a long-term asset allocation plan and stay the course.
Do not Get Trapped by Announcement
Do not get trapped by an announcement, market analyst or stock experts publish critics and even forecast about the market even there is no big drama going on. Don’t forget they are paid to write something. Do not believe 100% what has been written and make your own research. Whenever there is a major news announced, we are probably too late to act on it. So believe your own research and don’t get the market sentiment affects decision making.
Forget about Shortcut
Forget about the shortcut, don’t fall into those traps that promise you to be rich in a week time. This is what we call it – gambling. Invest and gamble are two different things and don’t get mixed up. Most often the attempts to make a quick money lead to losing a lot.
Buy and Hold Strategy
Buy and hold strategy. Buy and hold investing only works for certain stocks. It might be true in real estate investment (in some countries), as long as you bought the right properties from the right developers at the right locations. Always use tip no. 4 (Review Your Portfolio Regularly) as an investment strategy.
Reward to Risk Ratio
Reward to Risk ratio at a minimum of 2:1, an active investor or trader uses this rule very often. Let me give you an example on how this mathematical expression works. Someone purchases 10 units of share at $10 and places a stop-loss order at $5. That also means that he or she believes that the price of a unit will reach $20 in the near future. The trader is willing to risk $5 per unit share to make an expected return of $10 per share. That simply means the trader has a 2:1 (reward to risk) ratio on that particular trade.
Do not Borrow Money to Invest
Do not borrow money to invest, it is a big no no. This does not differ from gambling. Refer to tip No.2 and avoid borrow money to invest. One should save money to invest.
Property investment, smart investors buy property with lowest down payment and use leverage power to own more properties and making sure that there is always a tenant to serve the loan installment. I have currently two properties that I have tenants serves the loan installments. One of the properties was valued at $ 220,000 5 years ago, and the value of the property is now valued at $340,000 in the market. That also means I have made approximately 55% gain in my property investment.
Learn from Mistakes
The mistake had to be small, but you learn from it. Some investment mistakes can be significant and change your life. We all learn from mistakes every day and one should start with a smaller investment. Learn from the small mistakes so that we know what to do when making a major investment decision.
Compound Your Return
Compound your return, do not spend your return from the investment. I have started investing in unit trust 8 years ago when I was still studying. I began with $150 per month and I have managed to increase my total gain and capital to $83,000 today. I simply applied tips n0.1, 2 3 and 4. Then injected the returns again into different assets when they were low in my unit trust portfolio.
Find opportunities to invest
Find opportunities to invest, although I have been doing some investment in unit trust and properties, it is always better to look for other opportunities to diversify my investment portfolio as one does not know what will happen to both “baskets” tomorrow. Read more and keep yourselves up-to-date with what is happening every now and then in the world. For instance, online business (e.g. affiliate marketing) is now the most popular way to earn extra money and that is why I “invest” my time to blog. Read my previous posts on online business.
Pay Off Your Debt Before You Invest
Pay off your debt before you invest. especially for those who are new, there is no guarantee that your investment will make a positive gain at the end of the day. So, clear off the “bad” debt before you make further investment. Read this post to identify which are bad and good debts
Be patient, just like any other successes that you have seen, success is all about trying, patient and failure. Never give up easily and keep trying.
I hope the above Smart Investment Tips are useful for those who are or going to invest.