Fundamentals of successful investments

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investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

Investment refers to the investment of funds in order to generate income in the future. However, investments are not always successful.

This does not mean that once losses are possible, you should not even try to increase the capital. You just have to be prepared for losses. The famous English businessman John Bogle once said: "If you can not imagine that, trading on the stock market, you will get a twenty-fold loss, then you should not try to trade".

No one is immune from losses, but usually large losses happen to novice investors who are not yet familiar with the important rules of investing.

Below will be described the basics of investing that everyone needs to learn to increase the chance to multiply capital.

Diversification

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

Diversification is a fundamental principle of investment, which helps to avoid large losses in case of incorrect forecasts of the investor. Investing in different assets allows you to compensate for losses on one of them at the expense of the profits of the others. That is why it is important to diversify investments, especially for novice investors.

As the famous American economist Paul Samuelson said: "we are diversifying because we cannot predict the future".

However, not everyone supports the idea of diversification. Warren Buffett once said, "Diversification is a defense against ignorance. For those who know what they are doing, it is not so important".

The same view is shared by the famous trader Gary Bielfeldt. His fundamental principle was a complete rejection of diversification, he invested all the money in one thing, not sprayed on different projects. Today he is one of the most famous investors in futures trading.

Reinvestment

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Compound interest helps to accumulate capital faster, as well as reinvested profits, which also generate income. This approach allows you to receive additional income. Moreover, the effectiveness of this method increases with the increase in the term of investment.

For example, you purchased shares of OOO "Romashka" with a yield of 10.5% per annum, pay 1000 RUB per one share. After 10 years, you can get 10 500 rubles. However, if you annually reinvest the profits, buying more shares, even taking into account the fact that you will do it only on the profit received, a multiple of 1 share, then in 10 years your profit will be already 15 225 rubles.that is, reinvestment will bring you 45% profit without any additional investments.

Let's give another example. The person decided to save for a future pension of 3 000 rubles monthly. With this money, he purchased shares of large Russian companies that pay dividends, as well as Federal loan bonds (OFZ). On the stock exchange people came only 1 time a month, buying more paper. This strategy is not speculative, it is not trading.

Overall results:

  • If he had just saved money, then for 13 years he would have accumulated 483 thousand rubles. but, given that he invested in shares and reinvested dividends, then, thanks to the compound interest, his capital amounted to 6 million rubles.
  • Secondly, after 13 years, he began to receive dividends of 240 thousand rubles At the same time, he owns shares, the price of which tends to rise.

Interesting? In the near future we will prepare an article with detailed instructions on how to start investing money.

Basic principles of investment

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

  • Clearly define the purpose of the investment. The investor should see a clear goal: to save for retirement, buy a house, a car or simply protect savings from inflation. Depending on the goal, tools and strategies are chosen.
  • Never invest the latter. This is the most important rule. There is always a risk of losses, so it is important to invest that part of the funds, the loss of which will not cause serious problems for the life of the investor. For this reason, you should not invest borrowed funds.
  • Diversify risks. The famous expression: "Don't put all your eggs in one basket" is great for investing. To reduce the risk of loss of funds, it is recommended to divide the capital between several unrelated assets. This will cover losses from one asset at the expense of gains from other assets.
  • Study the object of investment. The better an investor knows the assets in which he plans to invest, the higher the chance that his forecasts will be correct and bring profit.
  • Analyze stock market instruments. Before investing in a particular instrument, it is necessary to analyze its dynamics, the state of the Issuer, its position in the market, on the basis of the analysis to make a forecast about the future behavior of the asset. Only after such a thoughtful approach can you make a decision about investing money.
  • Their own decision. On the Web you can find a lot of opinions of experts and analysts. Despite this, the investor should understand that he is responsible for his decisions. Therefore, the opinions of experts should be paid attention to, but the final decisions should be made on the basis of their own views.
  • Be prepared to suffer losses. Losses, especially in portfolio investments,are normal. The main thing is that the final profit exceeds the losses received on individual instruments.
  • Observe investment discipline. An important rule is to stick to the chosen strategy. Very often there is a temptation to buy or sell something bypassing the chosen strategy. However, this non-systemic approach often leads to losses or lost profits.
  • Control emotions. The financial market is not a place for impulse decisions. Every investor's decision should be considered, not emotional. Don't get emotional when it comes to money.
  • Bring the invested amount to the optimum. It is better to start investment activity with a small amount. This will allow you to gain experience and insure yourself against serious losses. However, small investments will not be able to bring a really significant profit. Taking into account that on average investments bring 5-15% per annum, over time it is necessary to increase the invested amount to the optimal size.

The above principles are the foundations of investment activity, observing which you can significantly reduce the risks and increase the chances of obtaining the desired income.

Investment basics from world-renowned professionals

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

Warren Buffett

One of his main recommendations: "Watch out for debt".

Another important tip from the billionaire: «If you have a choice, it's much more important to say no than «Yes».

This advice underscores the importance of making decisions based on analysis and common sense rather than emotion.

"It's better to buy an amazing company for a good price than a good company for an amazing price".

With this phrase, Warren Buffett emphasizes that it is important to buy not those securities that have shown good growth in the short term or sagged relative to a fair price, but those that are able to grow strongly in the long term due to their own potential, and not due to market fluctuations.

"If you buy what you don't need, you'll soon start selling what you need".

Warren Buffett is a supporter of strategic investment, he is against diversification for the sake of diversification. He recommends investing only in assets that are truly of interest to the investor, without spraying capital on things that are not of interest.

Donald Trump

"I am richer than my father was, but I did not start from scratch — at the start I had a very good Foundation. In addition, my father has always been a great example of an entrepreneur for me, and I grew up next to him not only as his son, but also as a businessman. However, our family members have never competed with each other, and I think they never will".

Currently, Donald trump is known to many only as President of the United States. However, before that, he became famous as the most outrageous billionaire. Thanks to his intelligence, Donald trump has increased the capital of his family, which makes it safe to say that his advice can be listened to.

"The best investment opportunities are stocks and bonds".

Donald trump advises investing in assets that generate income in the long term, namely stocks and bonds.

"Finance and business are dangerous waters in which voracious sharks go in circles in search of prey. In this game, knowledge is the key to strength and power. Spend money to know what you're doing. Otherwise someone very quickly "wins" you."

It is important to constantly improve your knowledge in financial terms. Never stop in the knowledge of financial instruments, in the analysis of assets, to be constantly in motion, in search of new investment ideas.

Carlos Slim ELU

From 2010 to 2013, the Mexican businessman held the title of the richest man in the world.

"Avoid excess even at the best of times. This guarantees stability during the most difficult periods of life".

Despite the fact that his first million, Carlos earned in 17 years, he never lived in a big way, did not buy expensive cars, yachts and houses. Carlos slim ELU recommends that businessmen and investors do not spend money on senseless luxury, even in a period of success.

Eli Broad

American billionaire Eli broad gave advice that can be used in any field.

"Don't risk everything".

Short-term trading, especially with credit leverage, can yield unexpected results. Therefore, when concluding transactions, it is important to take risk management seriously and not to enter the position by all means.

Ray Dalio

The famous American billionaire gave a very important advice:

"Ignore the experts and think for yourself".

It is always important to remember that the final decision is made by you. Due to various analytical information, many traders and investors forget that the responsibility for success in investment activity lies solely with them. Of course, you should take into account the opinion of reputable analysts, but this does not mean that you need to "blindly" trust them – the best option is to conduct your own analysis.

Bodo Schaefer

He is the author of many books on financial literacy. His advice has helped millions of readers. I would like to highlight one of his tips

"We must do, not try. Who wants to try, the ready to failure. Only to try is simply to justify your failures in advance, to forgive them in advance. There is no attempt. Either you do something or you don't".

Bodo Schaefer emphasizes that it is important not only to start a business, but also to bring it to the end. If a person is subconsciously set up to fail, he puts less effort into his efforts than is required.

Robert Kiyosaki

In his popular books of economic orientation he gave many useful recommendations:

"The word' impossible ' blocks consciousness and potential, while the question 'How do I do it?"makes the brain look for solutions".

Jeff Bezos

The American entrepreneur, the founder of the Internet company Amazon, who, thanks to the development of his business, became the richest man in the world, earning over $ 100 billion, is really an expert, his advice should be listened to.

"In the long run, you make sure that the interests of shareholders and customers coincide".

Like Warren Buffett, Jeff Bezos thinks long-term, realizing that it is time that helps real businessmen.

The main investment options

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

There are several main investment options, differing in four main criteria:

  • Level of risk.
  • Yield.
  • Minimum amount.
  • Term.

Each investor must decide for himself what ratio of factors is suitable for him, since the first two factors have an inverse relationship.  There are no assets that show maximum profitability and low risk at the same time, you always have to look for a balance. Below we consider the various assets, analyzing them in terms of the above factors.

Bank deposit

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

  • The risk level is minimal.
  • Profitability-low.
  • Minimum amount - 1 000 RUB. (less than 1 RUB.).
  • Loan term – from 3 months.

The main advantage of this asset is a low level of risk. According to the current legislation of the Russian Federation, all deposits up to 1.4 million rubles are insured by the Deposit insurance Agency. This means that regardless of the state of the Bank where you have opened a Deposit, you are entitled to a refund of the invested amount.

In addition, banks offer a wide range of deposits with different conditions (terms, minimum amount, possibility of withdrawal and replenishment).

Reliability, convenience and the absence of the need for special knowledge make Bank deposits the most popular investment option.

Realty

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

  • The risk level is low.
  • Yield - average.
  • Minimum amount - from 500 thousand rubles.
  • Loan term – from 6 months.

Real estate investments have the largest threshold for entry in monetary terms. This is due to the fact that apartment prices are usually above 500 thousand rubles.

Of course, you can invest in garages or Parking spaces, which will require less money, but such investments have their own specifics.

The purchase of real estate in Moscow or St. Petersburg will require much more, the amount will be in the millions of rubles.

Rental income with the right approach can exceed the rates on Bank deposits. At the same time, there is an increase in real estate prices, not too large, but stable, which in the long term will increase the profitability of such investments.

Stock

  • The risk level is above average.
  • Profitability is high.
  • Minimum amount - 500 RUB.
  • Term-any.

It is believed that the shares are suitable only for experienced investors, as their profitability is influenced not only by the size of dividends, but also by the dynamics of exchange rate value.

Usually dividends do not bring much return, but the change in the rate of the security allows you to earn tens of percent per year. At the same time, there is no need to invest large sums at once, there are reliable companies whose shares are worth several hundred rubles.

Stock

  • The risk level is moderate.
  • Yield - average.
  • Minimum amount - 1 000 RUB.
  • Term-from 3 month.

If compared with Bank deposits, it is a more complex asset, as it requires certain knowledge. The level of risk, as well as profitability, can vary significantly.

For example, the yield on government bonds is comparable to the yield on Bank deposits, but the probability of default on them is extremely small. In turn, corporate bonds can yield high returns, but also carry increased risk

As a rule, large corporations do not need to attract investors with high rates, while for small firms this is the only way out.

The bond coupon is paid mostly once a year. However, there are bonds with interim payments – semi – annual, and sometimes-quarterly.

Precious metal

  • The risk level is moderate.
  • Profitability-low.
  • Minimum amount-from 100 rubles.
  • Term-from 1 day.

Investing in precious metals is usually carried out with the help of impersonal metal accounts. The minimum amount usually starts with 1 gram of metal, in the case of gold or platinum, many banks reduce the minimum amount to one tenth of a gram.

Usually, precious metals are called "protective asset", so their profitability is usually not great. There is a probability of a loss.

Currency

  • The risk level is high.
  • Yield-above average.
  • Minimum amount-from 1 unit.
  • Term-any.

Investments in foreign currency are quite risky, primarily due to the high volatility of the foreign exchange market. Therefore, you can get both a good profit and a serious loss.

It is possible to invest in foreign currency both by means of direct exchange, and by means of the Forex market. The latter option has a higher potential return, but also a higher level of risk.

Rules of personal Finance

investments, investment rules, assets, where to invest money, where to invest, profitable investments, investment rules, investment basics

It is important to remember that the money we earn is not just for spending. They have to work, bringing us additional income. If at the end of the month from the earned money remains some part, it can be used to increase the capital.

If the surplus does not remain, then they need to be created. To do this, there are several ways that were used by the richest people at the beginning of their careers.

Rule 10%. The essence of the rule is to set aside 10% of income every month. The remaining 90% you will be completely missed, as well as 100% - this is proven by experts. We recommend that you record your daily expenses by categorizing them:

  • Products;
  • Clothes;
  • Transport;

After a while you will see that 10-15% of your income goes to "other", that is, what you could do without. Therefore, if you reduce these costs, the tragedy will not happen.

The four-envelope rule. All funds should be divided into 4 envelopes:

  1. Investments – 10% of monthly income.
  2. Everyday need.
  3. Utilities and other mandatory payments.
  4. The maximum weekly expenditure - in it every Sunday the amount from the second envelope is shifted (in it it is necessary to put as much as it is planned to spend for a week).

Conclusion

There are several basic principles of successful investment:

  • It is important to have the knowledge to be able to make independent investment decisions.
  • It is necessary to determine suitable instruments based on profitability, risk level, investment term and available amount.
  • Risk control methods should be used (e.g. diversification).
  • Costs should be minimized.

These principles will increase the chance of making a profit on investments and will protect newcomers from the typical mistakes that lead to the loss of invested funds.

Any questions? Write them in the comments, our experts will answer you soon.

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