10 Golden Rules Of Investing

A reader recently emailed me asking what golden rules or tips I follow when it comes to investing. Here are the ones I find key to my own investment journey.

  1. You don’t need lots of money to start investing. Even small amounts make a difference. Small amounts add up over time.   You only need £70 a week to become a millionaire. The best time to start investing was 10 years ago. The next best is now.
  2. Don’t try to time the market. There are only two types of people: those who can’t market time, and those who don’t know they can’t market time. Time in the market is the most important think.
  3. Don’t have sky high expectations. Historically, stock markets have produced returns of 7% – 8% per annum. Don’t be fooled into thinking you can earn much more than this. Avoid the fraudsters who promise consistent double digit returns.
  4. Keep Fees low. Watch the investment fee your broker or fund manager is charging you. Keep this is as low as possible. A few basis points in extra fees can cost you a lot of money in the future.
  5. Invest in businesses not stocks. Don’t overtrade. Looking at your portfolio every day can lead you to overtrading and increasing your fees. Instead focus on investing in quality businesses that you can hold onto for a long time.
  6. Have a long time horizon. The only way for small investors to outperform is to increase ones time horizons. Forget about buying stocks for the next week or month, instead buy with the intention of holding for the next decade.A study conducted by Hargreaves Lansdown shows that by increasing your time horizon, you increase the chances of making a profit from your investment decisions. Over period of 10 years, the chance of making a loss is close to nill.
  7. Buy Assets, Avoid Liabilities. Learn how compounding works for both investments and for debt. Compounding is called the 8th wonder of a world for a reason. Build a collection of cash flowing assets. Avoid debt or highly indebted companies at all costs.
  8. Make your money work hard for you. Make money your slave. Let it go out there and do the hard work. Let your money make you even more money.
  9. Keep It Simple. If you don’t understand how something works, avoid it. Often the best businesses are the simplest to understand.
  10. There is no one magic solution. Different strategies will work for different people. One person can make money by being a dividend investor whilst another can make money by being a growth investor. It is not a zero sum game. The most important think is consistency. Once you find a strategy that works for you, stick with it. Don’t be tempted to deviate. Be consistent.