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7 rules for a starting investor! The most important advice on investment.

This article belongs to Knowledge base section. The best articles on investment on the Internet!

I’m sure that many people, when hearing the word “investment”, think something like this: “What for do I actually need investment? My savings are under my pillow and I’m content with it”. At first sight, it makes sense, because this method of saving your funds involves minimum of risk. But in fact, if you have chosen this tactics, you have already lost.

The case is that any money you have immediately faces inflation and starts depreciating (and with a glance to instability of the national currencies of CIS countries, it is really depreciating right before your eyes). At the same time, you can safely multiple 2-3 times the official rate of inflation, announced on TV. I have always wondered if the experts, who calculate the inflation level, have ever gone shopping?

Thus, after receiving money you can: spend it, save or invest it (investment includes buying assets). And if the first case means exchanging money on goods and other valuables that are necessary for a person’s life, in the second situation your money simply evaporates. And only the third method enables you to save and increase your savings.

1. Diversify.

Diversification is the main rule of successful investments that enables an investor to reduce his risks. According to this rule, it is necessary to use several investment instruments instead of one (the more is the better).

That means that if you, for example, have decided to invest a large sum of money in PAMM accounts, this approach will prove to be wrong. It’s advisable to divide this sum into parts and invest it in several different investment instruments, for instance: PAMM accounts, HYIP programs, real estate and mutual funds.

Diversification should be used within every particular instrument as well. For example in case of PAMM accounts, you should divide your deposit between various accounts, choosing executives with different rate of aggression and conservatism, if possible.

2. Understand the instruments you invest in.

People always want to do less and earn more. Investment is not immune to this trait of the human character as well. Starting investors want to make deposits and receive sustainable profit without spending time on studying the subject. I think that this is one of the main reasons why investors lose money instead of gaining profit.

Putting luck to the side, the most successful investor will be an expert in the field, which he invests in. People who are the best investors in the real estate sector are a dab hand at real estate. And those who invest in sites are equally a dab hand at sites.

Therefore, before investing money in any investment instrument, you should study it thoroughly. The more knowledge and experience you will get in the sphere, the higher the chances of successful investment will be.

3. Withdraw the principal at first, only then reinvest.

If your investments are more or less risky, you should adhere to this strategy. And it implies that you should withdraw the principal as soon as possible, despite temptation to start reinvesting at once.

And temptation here is really strong: let’s imagine, you have invested 100,000 rubles in an investment program and receive about 5,000 rubles of profit per month. If you start reinvesting, in a year your deposit will amount to 160,000 rubles and you will be getting 7,000 – 8,000 rubles of profit. And in 3 years your monthly profit will increase up to 20,000 rubles.

Such an approach enables you to increase the return rate of an investment instrument, but, on the other hand, it increases the investor’s risks as well. Therefore, it makes more sense to return the principal at first. And after the payment amount exceeds the initial deposit, you can proceed to reinvesting.

4. Reinvest sensibly.

After you have returned the principal, you can start reinvesting various profit shares: starting from 1% and up to 100%. My personal opinion is that 50% is the best option. That means that you can withdraw half of the profit amount and reinvest the other half in the program, thus increasing your deposit.

5. Don’t invest borrowed funds.

Starting investors often fail to assess their risks correctly; they are too confident in their success and therefore, take too many risks. One of the most inconsiderate acts is investing somebody else’s money. It can be either credit, or loan form friends or something else.

It is impermissible, because in case you fail, you will not only get no profit, but will be indebted as well. But where can you find money to invest, if you cannot borrow it?

Learn to save, place aside and spare, find additional sources of income, increase your professional value. Moreover, many investment instruments have low level of the minimum deposit. Therefore, beginners can practice with small sums of money.

6. Use investment profit sensibly.

There are various ways to spend investment profit. Some people use it to buy equities (cars, smartphones, devices, etc.) and some buy assets (things that generate profit or increase in value, for example, real estate) or invest money in new investment instruments.

I would recommend doing both. On the one hand, you should make money work, but on the other, if you cannot spend it on yourself, you can lose motivation and reason for earning it.

7. Don’t make decisions under influence of emotions.

A successful investor always stays cold-headed when making decisions. But various investment programs will try to make you forget about the cold head by addressing your emotions.

Don’t rush to make a deposit, take time to think everything over thoroughly. If you are considering an opportunity to invest a large sum of money, you can take a small time-out for several days, take your mind off things and then with renewed strength get down to considering the matter again.

It’s important to be able to turn off emotions and use only your sense to analyze the risks. And don’t be too optimistic when making forecasts. Always think over the probability of the worst outcome.

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