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What Are the General Laws of Investing?

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Investments can make or break and individual depending on how well they are done. There are some general laws of investing that can be followed in order to help lower risk to the investor. These are not fool proof by any stretch of the imagination but some good guidelines to help protect your money and investments.

One of the first things an investor should consider is their ultimate goal when it comes to investing. A retirement fund is a long term option, whereas money for a family trip or other expense may warrant a higher risk investment such as stocks. The retirement fund can be something as simple as an IRA or some CDs tucked away in a bank for 20 years as the funds needed from them will not be required right away.

Diversification is a word that many investors and financial advisors use and with good reason. The old saying goes, “Don’t put all your eggs in one basket” and this is very true when it comes to investing. By spreading out investments over different types, the investor can help to protect their overall bottom line should one or more investments fall through.

An individual that invests, for example, in stocks exclusively, is relying heavily on the market not only remaining steady and increasing, but never falling. The smart investor chooses a variety of CDs, stocks, retirement accounts and mutual funds in order to achieve that balance. This helps to cover them should any one of their investment bottom out.

Do not deviate from your investment strategy due to emotions and maintain an objective view. By reacting impulsively because a news brief throws you a curve or the market dips slightly for the day, it is possible that you will be throwing away a profitable long term investment due to the moment. Keep an eye on the long term goal and stick to that strategy of buying or selling investments when they reach a certain value and not based on the day to day trends or scars.

Above all, one of the most important laws of investing is to be aware of the impact that taxes and inflation have on the overall bottom line. Taxes creep up on an investor as they are not a huge sum at one time, such as a market drop, and if not watched carefully can put a good dent in any investments in place. Be sure that the profits that are being realized are enough to cover not only the taxes and inflation but are enough to achieve your investing goal.

By Jack T . Riley

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