The simple rules that help you increase your capital with minimum risks
Every sensible person with some cash to spare would like to at least preserve it, and at best increase it. Unfortunately, the capital obviously cannot grow on its own – it has to be invested somewhere. Today we will tell you the secrets of successful investing.
Successful investment is based on a number of simple rules that help you safeguard your investment as much as you can and provide some table passive income.
Rule No.1. Limit risks in advance
The more you invest – the more profit you might get. However, there is no 100% guarantee that you will make some money off it, or even preserve your investment: even the most reliable of banks are not insured against force majeure.
Investment is not only likely profit; it is also potential loss. So to begin with, you only should invest the part of your own capital that won’t affect your ordinary way of living if you lose it. To do this, specialists recommend you split your earnings into three parts:
- basic capital means the money that covers your daily costs, such as food, housing, education;
- savings refers to funds you’ve set aside to buy something important in the near future, like house renovation, car purchase, or vacation;
- working capital is the money you can use to generate passive revenue, without any pain or damage to your position and your family.
You should not, under any circumstances, use the basic part of your earnings for investment purposes, never! It is better to generate your own “fund” by putting aside 10-20% of your earnings than end up with no subsistence money after one wrong decision!
Attention! Never ever invest money you borrowed: be it a loan or a money a friend or relative lent you. When you only risk your own capital, you won’t run up debts in the worst case.
Rule No.2. Diversify your investment
No matter how reliable an investment seems, do not put all your eggs in one basket. Diversification is the best way to increase your profit and limit your loss: split your working capital into several parts and invest in various segments of the market or in different investment products.
This is the principle followed by the greatest investors of today – this is why they make profit (or at least do not lose their money) even in the deepest recessions. Bought some bad papers in the stock market? No problem, revenue from derivative or Forex markets will cover the loss and keep your balance positive!
Even if you only have small working capital, that is no reason to avoid diversification: there are many solutions in the market today, like structured financial products, that are available for a wide range of investors. These instruments inherently have diversified risks, so you can limit your losses in advance.
Rule No.3. Redistribute profit
The moment your investment starts paying off is not only very exciting, but also very important for a novice investor. Properly managing your earnings is an art on its own, and there is no universal strategy here. The main piece of advice sounds like this: do not spend the money you earned; increase your working capital.
One way to manage your capital is to remove earnings as they are received and invest them into other assets. Do you want to spend some money on entertainment or on personal needs? That’s what basic and savings parts are for, as we wrote above. In any case, costs need to be planned so that they do not exceed your earnings.
Diversify your investment portfolio, study new markets – the more diversified your assets are, the more prospective revenue you can generate in the future.
Following these rules will definitely bring you closer to financial independence and help avoid fateful errors. However, you should keep in mind that many things in investment business depend on your patience and composure. You must be psychologically prepared, for example to periodic downturns in the stock market or drops in prices of the assets you purchased. Don’t panic, or you will lose even more.
That means you need to understand very well where you are investing. Take the time to study the markets, look through the respective information in the literature and in the news. If you are not sure about your competence – consult a specialist.
An excellent option is to trust your money to a professional manager. However, you have to be extremely careful about choosing investment companies and foundations. Do not trust companies that have little experience, no reputation and no legal regulation mechanisms, with your money.