Four simple investment rules that actually work
Four simple investment rules that actually work
The days of savings accounts are over for anyone who wants to advance financially. Today it is almost impossible to let your money work for you if you are not willing to step out of your comfort zone a little. There are many forms of investment, but they all have one thing in common: They can fluctuate in value from time to time and demand a certain repertoire of action and flexibility from the investor. Today I have four simple investment rules that actually work for you, at least they do for me:
1. Be true to yourself
The investor’s greatest weakness in trading and investing are his emotions. Emotional decisions are often irrational and flawed. They can lead to contradicting solutions to problems that some people have bitterly regretted in retrospect. But you can only stay in control of your feelings if you follow a solid strategy. Some will argue that emotions are what defines us as humans. That may be true, but as studies have shown, statistical models can often predict prices better than humans can. They have no variations and are not influenced by external circumstances. Unlike us. The decisions we make are influenced by our surroundings every day. We are receptive to advertising, scare tactics, react sensitively when stressed and are all too easily unsettled. A model doesn’t do that, and we have to take advantage of this opportunity.
2. Develop a strategy and stick to it
We therefore need a strategy in order to be consistently successful. A strategy prevents short-circuit reactions and panic sales, provided you stick to it. The markets fluctuate, this applies to stocks as well as cryptocurrencies and other investments. With stocks, it can happen that your portfolio suffers large losses in a short period of time, with cryptocurrencies this risk may be even greater. The typical reaction here is panic selling and even if you think, ahead of time, that you won’t panic, in the situation it will likely happen after all. A solid strategy can protect against such irrational decisions. In the case of cryptocurrencies, the big gains, like the losses, happen within a very short time. If you are not invested then, you lose out. So, it can happen that, despite a long-term positive trend, you are still in the red because you sold at the wrong time due to hasty decisions and missed the turnaround. If you are convinced of your strategy you should not let yourself be influenced by the daily fluctuations. One trick that can help with this is not checking on the market as often. If the strategy is right, the prices don’t matter, they just distract, bring you sleepless nights and lead to rash actions. Even star investors like Warren Buffet sometimes have bad years. What distinguishes them from the “normal mortals” is the discipline with which they pursue their strategy over the years. You believe in long-term success? Then stick to it. For the stock market, there are studies that suggest that long-term investments are always the best investments in the long run. Some even suggest that having a strategy is more important than choosing the right investments. This has also been the case with crypto currencies in recent years, as well as with my other investments, for example Getnode, where these rules that actually work have so far helped me a lot.
Four simple investment rules: 3. Diversification
Many say it, some know it and very few do it: diversify. Of course, things can go well when you put all your money into a single investment. But it can just as easily go down the drain. The more I diversify, the lower the risk. Some would say you could just map the market with your investments, but how do you stand out from the crowd when you are doing the same thing as everyone else? A certain number of well-researched assets and investments can make all the difference here, especially in different areas. Buying three different tokens on the Ethereum chain, to give an example, is not diversification. It does not necessarily have to be wrong, but here too you bet everything on one card. The situation is similar with stocks from the same subject area or investments in one area.
4. The difficulty of selling
The last of my four simple investment rules is about selling. Having a long-term strategy does however not mean you have to hold onto your assets forever. An investment strategy usually also includes investment criteria and if these criteria can no longer be met, you can part with one asset in favor of another. Profit-taking can also be useful occasionally, especially after large price jumps. However, this should be carefully considered and planned beforehand to avoid irrational decisions and reactions. The whole thing sounds contradictory, which is why I will try to summarize it: Bind yourself long term but remain flexible.
Simple investment rules can help, but selling is not as easy as it sounds. Buying is usually much easier because almost everyone has a hard time selling. But why is that? Human psychology plays a crucial role here. While there are no bad feelings when buying because you don’t yet know how the development will turn out, these definitely play a role when selling. Especially with investments that bring losses, for example a stock that has crashed or a coin that is doing badly, you must jump over your own shadow to sell them. Losses are difficult to reconcile with our ego, they scratch our self-esteem, and we do not want to admit them to ourselves. I suppose it is like the casino, the next roll will bring us back into the game, is what people like to believe. But is that the smart way? Sure, every investment can have a turnaround, but fortunate turns in a sophisticated strategy should not be necessary! Just like buying, selling should be based on the criteria of your personal strategy. If an investment no longer meets these criteria, it can also be sold. It does not matter whether it is in the red now or thick in the plus. If it does not meet the criteria, then there are certainly many alternative assets that do that and in that case isn’t it wiser to part with the asset and instead go for another horse that is better suited to the stable? The question you have to ask yourself is: “Would I buy this asset right now?” If the answer is a certain “NO!”, then sell it and buy something else. You are not married to it, so it shouldn’t be a problem.
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