Investing 101: What Are the Three Basic Rules of Investing?

Investing is all about knowledge and leverage. Understanding the things you are investing in is crucial to finding success as an accredited investor, hedge fund manager, investment adviser, or retail investor. But there’s a lot more to creating a growing portfolio of assets than simply investor research and a knowledge threshold. Mobilizing the information that you have in accordance with a governing investment strategy will provide you with the fertile financial ground to create long-term growth and success for you, your spouse, and the rest of your family in the current year and beyond.

In addition to the maxim most commonly associated with Warren Buffett—always prioritize reading time—these three foundational rules that guide successful investors can be easily incorporated into your strategy for creating the portfolio of your dreams.

1. Time Equals Money

Perhaps the most important rule of making good investment decisions as an investor is realizing that time indeed equals money (often high on the list of virtually every investment adviser). As a consumer—and more importantly, a knowledgeable employee—you’ve probably come to understand the trade of time for money. Each day, you get up and commute to the office in order to spend your time earning a wage. It doesn’t matter what work you engage in either; you’re paid for contributing to the ongoing tasks of your company.

Whether you’re one of many accredited investors (a designation that identifies someone with a net worth of more than $1 million) or a retail investor with a long horizon of investing left in the tank, the rule remains the same. The long growth trend of the market beats out routine stock picking in a head-to-head match-up every time. Just like you input your work every day in order to earn money, your money can be utilized as an input in the same equation. When your money is working for you, the longer it’s engaged with the market, the more you stand to earn. Invest for the long term and you won’t be sorry.

2. Diversifying

Investing 101: What Are the Three Basic Rules of Investing?

That is not to say that you should only invest in stocks and other commodities that offer simply long-running upward trends in price. A private fund, index fund, and retail investor’s stock and investment portfolio should include a variety of different types of assets.

The second rule of investing is to remember to diversify. Placing all your eggs in one basket is the easiest way to lose big. Of course, you might invest in a golden goose that trends rapidly upward, but the likelihood of this happening is slim to none. The best way to carefully curate your net worth and continue increasing the value of your holdings is to buy into a variety of different assets. The average stock investor owns stock in around 25 different companies, so perusing lists of the best Canadian stocks is a great way to identify new movers and long-term winners. There is no right way to diversify, but this might act as a good measuring stick for your own holdings if you are unsure of your portfolio’s diversity as it stands today.

Diversification provides the stability to outlast any sector-specific downturn in the short term. There may be a sudden need to sell shares in order to create fluid cash for an emergency or new stock-buying opportunity; diversification is the best way to ensure that you have the greatest chance of selling at a profit each and every time.

3. Balancing Risk and Reward Carefully

Investing 101: What Are the Three Basic Rules of Investing?

Finally, it’s crucial to understand your unique risk-reward balance. As a rule of thumb, the higher the potential upside, the riskier the investment becomes. Creating a portfolio that includes slow-growing and safe commodities alongside rapid movers that show intense levels of risk is the best way to incorporate the best of both worlds into your portfolio for the greatest chance of continuous success for as long as you remain an investor in the marketplace.

Boosting net worth is all about crafting a winning strategy. With these rules in mind, building success is simple.

Written by Abhishek

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