To be smart in investments means to have all chances to become rich and vice versa. This direct and merciless correlation wipes out an investor’s right for mistakes as one single wrong decision can literally cost a fortune.
If you’ll take closer look at the most successful investments in history, then you’ll see that seemingly lucky deals were not just a pure luck, but in fact, that was a wise foreseeing and clever money management. By analyzing those deals and interviewing some most successful and experienced investors, we have created the list of key concepts you should follow to make your money grow through smart and timely investments.
1.Evaluate risks and be ready for the worst scenario
The most successful decisions are made out of strategic view and profit hunger rather than risk avoidance. Therefore, in order to eliminate the fear from your inner investment reasoning, you should only invest the money that you psychologically are ready to lose. Always keep in mind the worst possible outcome of your investments and make sure that in a case if you will lose you money it will not influence your well-being and comfortable lifestyle.
This approach will help you to focus on somewhat risky but potentially extremely profitable deals.
2. Think “long-term”
Do not ever make decisions based on short term benefit, as you may (and, surely, will) miss the bigger picture and bigger profit.
For instance, when the market starts panicking and starts selling/buying certain securities due to news or anticipations, you should not follow the crowd as it is usually a hoax created by “big fishes”. Big investors often wreak havoc artificially, with the purpose to make the crowd sell assets on low price so big bosses can buy it cheap.
Aim for long-terms investments and long-terms goals and pick vehicles accordingly: gold, shares of top companies, T-bonds, Real Estate. Don’t put the lion part of your money in high-risk and high-yield assets, but instead choose reliable vehicles that will make your income grow steadily.
3. Focus on profit, but don’t take unnecessary risk
Surely, a total risk avoidance will never make you wealthy as the most profitable deals always require taking a risk. Nevertheless, however strong you hunger for money learn to avoid unnecessary risks, as several small losses will eventually drain your account and destroy your confidence.
It is very hard to resist the urge to join the market during a sudden and rapid uptrend, but remember: “easy money” is usually a trap many market players get into.
One of the best advice and most famous rules amongst top investors is: the best way to earn the money is not to lose it. (Steven J. Lee).
4. Include immediate annuities vehicles in your portfolio
During your long-term journey towards the wealth, you will need to have a guaranteed income that will keep you “afloat”. Securities with immediate annuities are the best addition to the long-terms investment strategy, so not only will you have a guaranteed income whatever the performance of your main investment portfolio, you feel also feel more confident and
5. Don’t sell prematurely
“Buy and hold” is the most famous investment strategy and it really works. Patience pays off especially when it comes to Real Estate, “blue chips” shares and precious metals. If you have found a great vehicle you believe in, whether it’s shares of a promisingly looking startup or other securities with outstanding potential. The most common mistake of beginning investors is a wish to sell something as soon as it has reached its first high. This move is driven by fear that the asset will bounce, go down and will never rise back to that price so the profit will be missed.
6. Adjust your decisions to your financial goals
The first and foremost step that should precede any investing activity is financial goals setting. How much income do you wish to receive from your investments and whether you want your investment portfolio become the main source of money? If your income will mainly depend on how good the performance of your investment portfolio, there is an impropriate risk of “putting all eggs in one basket”, means losing everything at once.
7. Buy great assets on low price rather than “trash” assets on a great price
It was said by the legendary investor Warren Buffet, that you should search for and buy outstanding vehicles with great perspective when those assets are at their lows (due to any reason), rather than buy something that appears to “shine” temporarily on the market. Learn to distinguish and identify what is worthy and what only seems so.
8. Pick instruments that are purely data-driven!
This strategy of choosing investment instruments will let you be independents of any financial advisors and brokers as the only thing you will need to understand and predict the behavior of your vehicle is tracking the market data and economic news. Choose those investment vehicles which behavior you understand the most, so it will be easy for you to predict things, not just to react to market’s price moves.
9. While making money through investing, live within your means
This is a basic, simple, and mandatory law of getting rich: spend less money than you earn. Do not make expenses that exceed your income in hopes that future profit from investments will cover your expenditures. This is a dead end that one day will make you bankrupt. That is why and you should only live within your actual earnings and start making big purchases only when investment fruits have already appeared.
10. Always reinvest
Analyze your portfolio and figure out what is your most reliable vehicle in terms of steady income. Don’t mistake “reliable” with a high-profit one, as high-yield assets are usually risky and unstable in terms of income. So, after you have determined your most reliable investment instruments, get a habit to reinvent in them a part of your profit automatically.
11. Leave your emotions behind the door
Financial markets and investing are not the spheres to involve emotions. We are talking about being overexcited, greedy and fearful. Emotions are not your money friends but rather are the worst advisors in decision making. You should be reasonable, able to foresee and always calculate a risk/yield ratio to have a clear picture.
12. Make sure your is in a healthy balance
Diversification is a cure to everything. A healthy investment portfolio is something that will protect you from the catastrophic loss if one or two of your assets plummet in price, your other instruments that behave opposite to fallen vehicles will save the whole portfolio as their price is supposed to rise (it calls risk hedging).
For example, it’s a very well-known fact that in a case major market assets fall due to the economic crisis, gold shows instant jump in price as everyone considers gold as a safe haven to keep money in.