Fundamental Principals of Investing


Making an investment because one of your friends has advocated it to you or deciding to invest after encountering some lucrative investment offer by yourself can become a critical mistake. It is not the road to wealth, but the road to failure.

 

Why is that and why amateur investors often do fall into that trap? This happens because beginner investors  often consider investing to be a pretty simple and straightforward process and as a result they neglect the basics of investing.

Before making any investment, you should learn and understand fundamental investing principals. Those fundamentals will help you to protect your money and increase your profits.

1. Diversification

This is probably one of the most important points you have to look at, when you consider how to start investing. Despite how appealing can be the asset you want to invest in, do not invest all the money you have into just one asset. This should be done for safety of your money. Instead you will be doing much better if you select few assets and diversify your money between them.

2. Holding cash

While making other investments it is important to always have some cash available. Why it is important to always hold some amount of cash? Because of market constant volatility and fluctuations there is a good chance, that an opportunity will suddenly rise. And that is where value investing comes in. Imagine that you discover, that stock price of a company, which has a good business model and fundamentals is far below the value it should be. It means that company’s stocks are undervalued and therefore will rise in future. With that in mind you need to act fast and buy those stocks, while they are still cheap. And cash you have successfully saved will help you to do that.

710597_85581884

3. Research

Before making any investment despite how safe it is – you will do much better if you make research first. Why it is important and how to start investing based on a research? Let’s have a look at an example.

For instance you have decided to put some of your money into a bank savings account, while this investment is safe by its nature, if the bank you want to invest is bankrupt, it won’t be a safe investment anymore. Or you want to invest into a stock market and see in a performance chart of the stock you want to buy, that it is undervalued and it is best time to buy it, while in reality it is not undervalued, it is the company you want to invest is on its way to bankruptcy. Always pay attention to others sources of information, not to the media, because when information is being widespread by the media – it could be too late.

4. Consider Fees

To calculate your future profits more precisely and decide whether investment is worth it or not, you should take into account fees. Despite which investment you will choose there always be fees out there. You may ask what fees? Well, when buying or selling stock – you pay some percentage to broker, bank also has maintenance fees etc.

5.Taxes

Taxes always was a complicated issue. Taxation laws are different in each country, but it is very important to find out these laws, before you start any investment. Ideally you want to make investment planning with tax advisor. It will be hard to find out all the nuances without tax advisor. But when you just begin to learn how to start investing or can’t afford tax advisor service, it will be enough to find out what tax is implemented for investments in your country.

Like this page? Save it, or Share it with the world! ----> Bookmark and Share