The 10 golden rules of investing (2024)

Ask anyone, they’ll mostly tell you that investing is the key to building wealth—and the sooner you get started, the more time your money will have to grow. Investing can be intimidating, and like everything else, it comes with risks. On the flip side, it can help you achieve your financial goals, so we’ve put together a list of rules to live by when investing that’ll help you get started.

The 10 golden rules of investing

Money is a representation of something in the future, says Rick Nott, a senior wealth advisor at LourdMurray. And because the future is generally more costly than the present because of inflation, investing can help your money grow over time to beat the rising cost of goods and services.

While no investment is guaranteed to produce returns, there are several rules of thumb worth following.

1. Create an investment plan that aligns with your financial goals

Before you start investing, you should create an investment plan that aligns with your financial goals. While everyone has different goals, it’s common for many to have some sort of overlap. For example, a common long-term goal includes saving for a house as well as retirement. Once you pinpoint what you want to achieve—and at what age you’d like to achieve those goals—you can calculate how aggressively you’d like to invest.

“Say a couple starts to plan their future: The sooner they decide they want to buy a home within five years or within two years, the sooner they can decide what their actual goals are,” says Timothy Mazanec, a wealth manager with the Harvest Group. “Then you can truly tailor your portfolio to those goals, and you can have a portfolio that matches your risk level.”

Investing 10% of your pre-tax income should be considered the bare minimum, Nott says—20% is his general rule of thumb. If you’re looking to be more aggressive in your investment strategy, that figure can be as high as 30% to 40%.

2. Start investing as early as possible

One of the most important rules of investing is to start as early as possible. This is because it takes time for money that you’ve invested to grow.

Another reason to start early: You can invest more aggressively—that can mean investing in riskier stocks or assets that can yield higher returns because you have more time to recover and meet your financial goals, while potentially having fewer expenses that make it harder to save. Whatever route you choose to take when investing, time is still the most important factor.

3. Don’t try to time the market

The stock market consistently moves up and down depending on a number of factors: the Consumer Price Index and Federal Reserve meetings, for starters. Because of this, it’s never a good idea to try to “time” the market. So don’t worry about negative-tending headlines about the economy or markets, Mazanec says, stressing that your “biggest asset when investing is time.”

“By timing the market, you’re out of the market, and if the market goes up over time, then you’re not participating in that,” Nott says. “ [And] it’s just completely unpredictable… In the long term, the market is driven by the economy; it’s driven by how businesses do. In the short term it is driven by noise and psychological behavior.”

4. Diversification is key

Diversification is the process of spreading your investments across asset classes. In doing so, you’re attempting to offset any potential losses by investing in assets ranging from low to high risk. One of the easiest ways to diversify your portfolio is to invest in something like the S&P 500 stock, which represents the 500 companies listed on the index.

Let’s say a scandal breaks out about a certain CEO of one of those 500 companies. That company’s stock will probably take a hit, but you won’t really feel the impact because you’ll have 499 other companies that you’ve invested in, Nott says.

5. Hedge against potential losses

Along the same lines of diversification, you should consider hedging against potential losses when investing. According to Nott, for most people, “the simple act of diversification is basically a hedge.” In that, you’re hedging one company with another. Still, cash, savings accounts, and bonds are great hedges to stocks, Nott adds.

6. Avoid paying high investment fees and taxes

Don’t be fooled into paying high investment fees and taxes. Let’s start with taxes: Typically you have to pay taxes on the sale of investments if you’ve made a profit—also known as a tax on capital gains. You can minimize your capital gains by using your losses to offset your gains. Let’s say you sold a stock for a $5,000 profit and another at a $2,000 loss in the same year. If you use this technique, also known as tax-loss harvesting, you’ll be taxed the difference—in this case that’s $3,000. Additionally, you’ll likely come across transaction fees each time you enter into a transaction, such as buying a stock or mutual fund. The only way to minimize transaction fees is to limit your number of transactions or lump your transactions together.

7. Understand what you are investing in

It’s crucial for you to understand what you’re investing in, but that doesn’t mean you have to be a financial expert. Instead you should take the time to research your investments rather than simply listening to investment advice from finfluencers on TikTok. That means understanding that if you’re investing in the S&P 500, you’re investing in 500 of the largest companies listed on stock exchanges in the United States. Still, if you’re struggling to get a grasp on what you’re investing in, you should consider working with a financial advisor.

8. Add to your investment over time

Adding to your investment over time plays to your biggest asset when investing: time. As mentioned above, time is so important when investing—that’s why it’s widely advised to begin investing as soon as possible. The reality is that we all have expenses, whether that means rent or car payments, so we can’t invest most of our income. But investing over time, allows you to pay off those expenses and even have some fun, while still preparing for the future.

There are a few investment strategies that can work here. For instance, there’s dollar-cost averaging, which involves making investments of equal amounts and at regular intervals, regardless of how the stock is doing. Another is lump sum investing, which, unlike the former, involves investing a portion of your cash all at once. They both have pros and cons—for instance, with dollar-cost averaging you’ll likely incur more transaction fees. At the same time, dollar-cost averaging can offset the impact of market volatility on your investments.

9. Review your portfolio regularly

If you’re not working with a financial advisor, you need to be reviewing your portfolio annually at the very least, Mazanec says. In his view, you would ideally be working with a financial advisor, someone like himself who does this every day and can gauge the market and make the right decisions for your investments.

10. Hold your investments long-term

Like adding to your investment over time, holding your investment long-term is really important to building your wealth, generating more profit. Your money needs years to grow, and with time, it can grow exponentially and generate higher returns. Nott says that if you have money you know you’ll need two years from now, it shouldn’t even be in the market.

Not to mention that there’s something called unrealized losses. Essentially, if you’ve got money in the stock market, and you see your investments have gone down, it’s not a real loss until you pull out.

“What you see on paper, on your screen, is not necessarily the outcome,” Nott says. “If you put money into the market at $1,000 on January 1, 2022, and now you have $800, that doesn’t mean that’s all that you have, [it’s] the temporary value of that money. If you could hold it for the time period that you should, which is at least five to 10 years, there’s a very high probability that you are going to see return and growth out of that.”

The takeaway

There’s a general consensus that investing can help you achieve your financial goals, giving you a leg up. The key? Start early. That way your money will have the time it needs to generate higher returns. But also identify your financial goals, so that you can tailor your investment portfolio accordingly.

Investing can be intimidating and risky. But there are ways to deal with that and increase your appetite for risk; sometimes that means starting small, and sometimes that means balancing your cash with investments as a safety net. Either way, there are resources out there to help you get started, such as investment books and financial advisors.

The 10 golden rules of investing (2024)

FAQs

What is the 10 rule of investment? ›

The 10,5,3 rule helps you determine the average rate of return on your investment. Though there are no guaranteed returns for mutual funds, as per this rule, one should expect 10 percent returns from long term equity investment, 5 percent returns from debt instruments.

What are the 10 golden rules of stock market? ›

Some essential rules of stock investment you should know are: understand the market, diversify investments, make small investments initially, invest for the long haul, avoid timing the market, do not follow the herd mentality, ask for expert help when needed, keep a check on rumours, and do not invest borrowed money.

What is the 10 rule in the stock market? ›

It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments. By following this rule, you can spread your investment risk across different asset classes and investment types, such as stocks, bonds, real estate, and cash.

What are the golden rules of investing? ›

The golden rules of investing
  • If you can't afford to invest yet, don't. It's true that starting to invest early can give your investments more time to grow over the long term. ...
  • Set your investment expectations. ...
  • Understand your investment. ...
  • Diversify. ...
  • Take a long-term view. ...
  • Keep on top of your investments.

What is the 70 20 10 rule for investing? ›

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

What is the 10 10 10 rule in investing? ›

It is a simple rule that answers the following questions. What will be my thoughts 10 minutes later about the decisions that I make now? What will they be ten months later? And what will they be ten years later?

What is the number 1 rule of investing? ›

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

What is the 90% rule in stocks? ›

The 90/10 rule in investing is a comment made by Warren Buffett regarding asset allocation. The rule stipulates investing 90% of one's investment capital toward low-cost stock-based index funds and the remainder 10% to short-term government bonds.

What is the 11am rule in stocks? ›

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

What is the 80% rule in trading? ›

The Rule. If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.

What is the 20 rule in stocks? ›

In other words, the Rule of 20 suggests that markets may be fairly valued when the sum of the P/E ratio and the inflation rate equals 20. The stock market is deemed to be undervalued when the sum is below 20 and overvalued when the sum is above 20.

What is the 7% loss rule? ›

The 7% stop loss rule is a rule of thumb to place a stop loss order at about 7% or 8% below the buy order for any new position. If the asset price falls by more than 7%, the stop-loss order automatically executes and liquidates the traders' position.

What are the 3 basic golden rules? ›

1) Debit what comes in - credit what goes out. 2) Credit the giver and Debit the Receiver. 3) Credit all income and debit all expenses.

What is the most popular golden rule? ›

"In everything, do to others what you would have them do to you. For this sums up the law and the prophets."

What is the 15 15 rule in stock market? ›

15-15-15 Rule in Mutual Fund. The 15-15-15 investing principle suggests dedicating 15% of your income over 15 years to a mutual fund offering 15% annual returns, aiming to realise long-term financial objectives. The 15-15-15 rule of investing is a simple and effective way to achieve your long-term financial goals.

What are the 7 golden rules of trading? ›

Successful day traders follow key principles of understanding the market, setting realistic goals, managing risk, having a trading plan, monitoring their performance, staying disciplined, and taking breaks. By following these rules, you can maximize your profits while minimizing losses in day trading.

What is the rule of 15 in stock market? ›

The mutual fund 15x15x15 rule simply put means invest INR 15000 every month for 15 years in a stock that can offer an interest rate of 15% on an annual basis, then your investment will amount to INR 1,00,26,601/- after 15 years.

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