the principles of a good investment if you have an idea or know a thing or two
about investing then you probably aware of some of the following principles but
if you have no clue no worries we've got your back we'll share with you
15 of the most important principles that will guide you in making investment
decisions which will keep your investing OnPoint
these investing principles are in no particular order but I believe the last
few are the most important but right before we begin do me a huge favor and
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risk and return go hand-in-hand the ultimate principle of all
investments is that risk and return are basically different sides of the same
coin you see the higher the risk the higher the rate of return for example an
investment that promises you a return of over 20% of your initial investment will
most likely have a higher risk compared to an investment that will give you a
10% return also keep in mind that investments that substantially increase
rapidly are very high risk for example let's say you invested in a stock that
grew by 50% within a year which is a very good return on your investment now
understand that this is probably a very volatile stock and as quick as it grew
it can come crashing down just as fast we will talk more about this later in
the video risk and return are like fire and oxygen
the safe investment as we all know offers the lowest return for your money
and most investors usually flock to these kinds of investments because
nobody wants to lose their hard-earned money however for a risk taker hungry
for huge returns these safe investments aren't as appealing they prefer riskier
investments with potentially huge upsides such as startups and I POS with
this in mind it's up to you to choose how to play your cards 12
diversification is paramount one of the best ways to secure your money when
investing and also guarantee a good return is to diversify your investment
we all know that stocks are like rollercoasters and they constantly
fluctuate depending on market conditions and what's going on in the country this
is why gurus in the investing industry usually advise people to diversify their
investment portfolio this means you can invest in different asset classes such
as bonds come these stocks in different sectors such
as tech energy healthcare and so on if you hate losing money diversification is
your best bet to safeguard your investment while at the same time
growing your money you see by diversifying your portfolio you're
insuring your investments against constant market volatility that can
easily wipe out your money let's say if two out of the five stocks in your
investment portfolio are performing poorly then the other three stocks
should cover the losses of your to losing investments this principle
ensures that you lower the risks of your entire investment eleven regression to
mean is a thing this may sound a little confusing to some of you but it's really
not that complicated it simply means that all the things in
our world from average return on investments ROI to average yearly
rainfall usually returns to its historical averages let's say a stock
has been performing extremely well for the past three years constantly giving
investors in ROI of 28% or more annually while the average return rate for
similar stocks is 9% while every investor dreams of a stock that will
guarantee them year-on-year a return rate of 28 percent or more just like in
our example this Selma's never happens most stocks just like the one we
mentioned before will usually return to its industry average and historical
yearly growth so although the stock did grow at 28% or
more each year for three years it will most likely return to its industry
average of 9% when most investors are analyzing stocks they look at the most
recent returns of an asset class rather than the past trends by doing this they
are trying to foresee and predict its future performance because the
regression to mean concept will take place stocks that constantly overperform
for a couple of years will probably underperform within the next coming
years it's almost impossible for an investment that is yielded modest
returns historically say for the past 15 years - all of a sudden become a serious
moneymaker ten investment costs matter all costs matter even that 1% fee could
often go unnoticed many people don't pay attention to the
small fees they're charged as they should see a small 1% fee may not mean
much but when you do the math you'll be completely surprised just how much you
could potentially lose let's say you're shopping around for a fund manager and
you find see great choices one charges you 1.5 percent annual management fees
and the other charge is 0.5% it doesn't seem like a big difference does
it right now it may not look like much but over time that small fee could
result in you potentially losing thousands of dollars in the years to
come it's believed that fun companies that charge more in fees have more money
for research and the perception is they do a better job however research
indicates otherwise investors who minimize all their costs do better
overall 9 have a margin of safety price and value for your money will always
matter when it comes to investing one of the best principles of the art is to
have a margin of safety by this I mean purchase assets for less than their real
value basically buy them cheap sometimes assets will be priced lower than their
intrinsic values especially during a recession period acquiring an asset at a
low price or at below market price is a great deal for an investor because the
return on investment is almost guaranteed plus it for some reason he
needs to get rid of the asset quickly then the margin of safety will protect
the investor we all know circumstances can easily change in the financial
markets financial markets are sensitive to multiple factors see what happened
with coronavirus within no time markets are plummeting all over the world eight
asset allocation is key the way an investor divides their portfolio among
different asset categories is key to ensuring returns on their investment
this is where many investors fail as they put very little thought into their
asset allocation strategies by investing solely in overvalued assets you were
bound to experience lower long-term returns the key is to always evaluate
all categories underweight the expensive categories and overweight those that are
bargain priced 7 have a long-term mindset sure you can make a couple bucks
through speculative moves in the financial markets but most of the time
you'll burn a lot of money trying to chase the next big wave the true essence
and beauty of trading is buying an asset at a favorable price and waiting for it
to appreciate in value this may take a while though as Warren Buffett says
long-term investing is one of the most important investing principles as
short-term trading will only lead to lower returns or losses in the long run
don't let fewer greed take over your decision-making process and let time do
its thing 6 power of compounding if you're looking for exponential growth
then you better take some time to understand compounding take the time to
understand how it works and how you can use it to double up your
returns one of the most exciting aspects of compounding is the multiplying effect
it has on your money over time instead of constantly withdrawing
dividends leave the money there and watch just how much more you'll be able
to make as much as compounding may be great
it can also be detrimental reverse compounding can be devastating for
example a 10% loss may only require an 11% gain to return to normalcy but a 50%
loss may require a 100% gain to get back to break-even
yikes five risk management nothing worthwhile in life comes without its
fair share of risks and investing is no exception to minimize risk investors
employee risk management strategies volatility and once portfolio is one of
the leading killers that can wipe away your money in a flash it's a serious
problem one that investors are constantly trying to maneuver around
especially in bear markets for those who don't know bear markets are the markets
where share prices are falling which encourages selling so by managing the
risk you will ensure you don't lose your money or volatility you need to run from
portfolio volatility but embrace market volatility with open arms it is easy to
control portfolio volatility but impossible to control that of the
financial markets however with market volatility comes great opportunities be
ready to take advantage of them at the right time be cognizant of the
overvalued assets and also be flexible enough to move your money once the
conditions are not favorable 3 control your destiny you should be in charge of
your money because no one will care about your finances as much as you do
conflicts of interest fraud and absurd fees make self investing a very
attractive option luckily today technology and the Internet has helped
in bringing down fees and all other transaction costs it also provides all
the needed information to make the right investment choices there has never been
a better time in history than now where you can be a self-directed investor with
very minimal effort instead of focusing on getting a fund manager or a financial
expert see what you can do by yourself you will be surprised at how much you
can save in fees and transaction costs - don't take it personal now just like
everything in life you'll lose and win the thing with investing is you could
either end up making minimal profits make a ton of money or lose it all
markets determine the return rates and they could either favor you or not favor
you ensure you don't take any failure to heart and be strong-willed to
continuously invest your money never give up one continuously learn and
research there's a lot of information on the internet use this info to learn new
trends identify new opportunities and channels of investing your money most of
the resources are free and some have a small fee continuously watch business
news to understand what is happening and you will soon become an expert investor
all by your own accord so in summary one continuously learn to
don't take it personal three control your destiny poor watch out for
volatility 5 mitigate risk 6 use compounding interest to your advantage
7 have a long-term mindset 8 asset allocation is key 9 have a margin of
safety 10 investment costs matter 11 regression to mean is the thing 12
diversification is paramount 13 risk and return go hand-in-hand that's it for
today folks we hope you learned a thing or two thank you for watching through
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have a great day