Share Market

There are certain rules which need to be followed while investing. The first rule is to have a clear cut objective of why the investment is being made and the plan of how to achieve it. In other words, you need to know the reason why these investment is being made, as you need to priorities’ the objectives of making an investment so that you can visualize them coming into reality. Besides, when making an investment, one should also take into considerations the risk involved. An investment which has a higher risk tends to bring in more heavy returns and vice versa, if done successfully. This means that one must know one’s capabilities regarding one’s income. For eg, a retired couple living on a fixed income, with limited capital assets, should not purchase the same investments as a young, single, highly-paid person with secure employment and significant assets.

The other consideration which needs to be taken is the time factor, of how long one can afford to invest as this will decide the investment vehicles. Suppose, if one is investing for less than a five-year period than one should probably not invest in the stock market at all, as one might need to sell when the stock market is depressed. In that case, investing in money market funds or short-term bond funds will be more beneficial. On the other hand, if you are young and can invest fairly small sums of money on a regular basis, you can win the money game quite easily. The power of compounding is on your side.

The next important rule is to not invest in the products which one finds it to be too complicated or which you don’t fully understand. Doing one’s own research and reading the prospectus is very important as this is what leads to success. Most of all, be objective; carefully study the choices, and don’t buy anything just because someone is trying to sell it to you.

Being objective in making investment is very important as emotions can make you take hasty decisions, which can be costly in terms of making a mistake. That is why, it is important to always step back and control emotions especially of greed and fear from influencing one’s decisions in investment.

While making investment, it is very important to understand the long term impact of taxes and inflation as these combined effects will create a seepage in the profits made in the investment plan.