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Thursday, 19 July 2012
The 5 Golden Rules of Investing Success
There are many more people watching share prices than investing in stocks.
Most realise that investing is the way out of living from pay check to pay check, but do not know where to start.
Stocks and shares seem to be the reserve of the rich; a risky business where the novice loses their shirt.
But there must be away to get started without getting burned?
Here are five rules to stock market investing success to get you started.
Get online and get the stock picking tools of modern investing.
ADVFN provides investors with free stock market tools that a few years ago would not even be available to the professional fund manager;
These free services let you make highly informed financial decisions on what share to buy and when to sell them.
Researching your stock market investments might seem like work. That is because stock market investing is work, as I discuss in my book 101 Ways to Pick Stock Market Winners.
Sadly investing is not a short cut to wealth, you need to treat it like any other way of making money -with focus and determination. Hopefully you will find it a lot of fun and more like a pastime than a chore.
Just as you cannot do a crossword without a pen, you shouldn’t invest without the best stock market tools which are online these days.
Happily ADVFN, one of the global stock markets leading web destinations, is free and the best place to go. So when you start the investing process get familiar with sites like ADVFN which will boost your attempt to get investing.
Until you own at least 30 different shares never buy more than £1000’s worth of any share.
Risking too much on any stock investment is a recipe for disaster, even for the sophisticated stock market investor. Keeping your individual share investments small keeps your capital pot safe and lowers the stress that can make investing unpleasant. Once you have 30 stocks you can grow the scale of each investment, but until that day stay small.
Build a stock portfolio of 30 shares.
Take no notice of the people that say put all your eggs in one basket. A portfolio gives you a certainty that bad luck won’t hurt you and that your choices on average will deliver the return your share picking deserves. This portfolio return over the years will outperform anything a bank will offer you on deposit and will compound.
A diversified portfolio will mean you will miss out on good luck, but investing isn’t about good luck. Bad luck and good luck cancel out over time but if you have too much of your money in too few shares then bad luck can knock you out of the game.
This is called ‘gamblers ruin’ and the way to avoid by having a portfolio.
Never invest your money on a share tip.
Stock investing is a skill you build up over time and with improvement your returns will grow. Share tips are empty investments and many unsavoury types try and lure you into investments with bad advice in the same way a salesman tries to sell you shoddy products with lurid advertising.
Just say ‘No!’ to share tips.
Invest in shares for the long-term.
Buy shares you think you will hold for three or more years. Do not make your broker rich and yourself poor by trying to trade. When the world’s most successful investor, Warren Buffett, claims sloth as his most profitable investing trait you should take note. Slow and steady wins the stock market investing race. Value investing is a great skill to learn.
Put your investing money in a SIPP or ISA and let the profits roll up tax free. While interest from the bank is taxed, using these tools can protect your stock market profits and dividends from tax; one more reason to let the long-term take hold.
Just remember, by the time you can afford a Ferrari from stock investing you will be too old to want one. You think that’s bad? Perhaps you should wonder if you have any other way to get Ferrari rich at all, before you worry how long it will take.
If you can see stock market investing as a part time job from now until retirement you will do very well indeed from it; it is the short-term forex and share traders that get burnt.
Investing is how a normal person can get rich slow. It is one of the few ways available to an average fellow, but because it takes hard work, discipline and time, not many people sign up for it
If you really care about your finances and your long term prosperity it is always a good time to start investing. It is a long road, but a profitable one.