Yesterday, I said that investment strategies can and should vary based on one's investment goals, one's financial position, and a host of other factors. I'm a firm believer in the fact that there are many paths to the same goal and that rules are made to be broken creatively. On the other hand, rules can be helpful guides for people until they learn whether they should be broken or not.
Toward that end, here are seven rules for investing in the stock market and building an investment account.
1.) Don't invest with borrowed money. OK, there are exceptions to this rule for advanced traders using margin accounts, but for almost everyone it holds true. If you are paying interest on the money you have invested, then you're rowing your boat against the current. There is no investment that is so good you should use your credit card, a bank loan, or money borrowed from friends or family in order to get in on "a sure thing." Never make an investment that will leave you in debt if it doesn't work out. Why?
Because 2.) There is no such thing as a sure thing (except as noted in rule number 7 below). Any investment you make is a potential loser. With proper research you can choose investments that are less likely to loose, but there are no guarantees. Surprises happen, and they can negatively affect almost any investment you might make. Losing money is bad enough, but if that loss leaves you in debt, it can be financially crippling for a very long time.
3) Never invest in a stock based on a hot tip, no matter where it comes from. By all means, use a hot tip as an excuse to begin researching a company if you like, but never as a factor in your investment decisions.
4) If you don't have time to get all the facts before you have to make an investment decision, then don't buy. If you don't "pull the trigger," the worst that can happen is you still have all your money. As a corollary to this, don't be afraid to keep cash in your investment account for a while. Sometimes, the time is not right to buy anything you know well enough to consider.
5) Most investment analysts (especially those with large investment houses) are liars. It seems to me as if at least half of their recommendations are designed to influence stock prices in their favor: they upgrade stocks when their investment arm is already fully invested and downgrade when their investment arm is getting ready to buy. It's market manipulation, pure and simple, designed to help them make money at the public's expense. That's just my opinion, not making specific or actionable allegations against any one in particular, but watch them carefully... Treat professional analysts' advice like a "hot tip." Use it as a catalyst to begin researching or following a company, but not as a reason to invest.
6) Save regularly. If you can put $10 aside in Al Gore's proverbial "lock-box" each week, then by the time my mock portfolio game at MarketWatch.com ends, you'll have your own $500 ready to start an investment account. Whatever your financial situation, put something aside every time you get paid. $1, $10, $100, 10%, or whatever you can do without unduly burdening your ability to pay bills.
7) If you've fallen into credit card debt, do everything you can to pay at least the amount required for a three year pay-off. You'll find that amount on your bill near the estimated pay-off time for minimum payments. Paying extra on your credit card gives you a guaranteed return of whatever the interest rate is. If you're paying interest of 9%, 13%, 17% or more, then paying extra principal on that debt is about the only "sure thing" you'll ever find.
Toward that end, here are seven rules for investing in the stock market and building an investment account.
1.) Don't invest with borrowed money. OK, there are exceptions to this rule for advanced traders using margin accounts, but for almost everyone it holds true. If you are paying interest on the money you have invested, then you're rowing your boat against the current. There is no investment that is so good you should use your credit card, a bank loan, or money borrowed from friends or family in order to get in on "a sure thing." Never make an investment that will leave you in debt if it doesn't work out. Why?
Because 2.) There is no such thing as a sure thing (except as noted in rule number 7 below). Any investment you make is a potential loser. With proper research you can choose investments that are less likely to loose, but there are no guarantees. Surprises happen, and they can negatively affect almost any investment you might make. Losing money is bad enough, but if that loss leaves you in debt, it can be financially crippling for a very long time.
3) Never invest in a stock based on a hot tip, no matter where it comes from. By all means, use a hot tip as an excuse to begin researching a company if you like, but never as a factor in your investment decisions.
4) If you don't have time to get all the facts before you have to make an investment decision, then don't buy. If you don't "pull the trigger," the worst that can happen is you still have all your money. As a corollary to this, don't be afraid to keep cash in your investment account for a while. Sometimes, the time is not right to buy anything you know well enough to consider.
5) Most investment analysts (especially those with large investment houses) are liars. It seems to me as if at least half of their recommendations are designed to influence stock prices in their favor: they upgrade stocks when their investment arm is already fully invested and downgrade when their investment arm is getting ready to buy. It's market manipulation, pure and simple, designed to help them make money at the public's expense. That's just my opinion, not making specific or actionable allegations against any one in particular, but watch them carefully... Treat professional analysts' advice like a "hot tip." Use it as a catalyst to begin researching or following a company, but not as a reason to invest.
6) Save regularly. If you can put $10 aside in Al Gore's proverbial "lock-box" each week, then by the time my mock portfolio game at MarketWatch.com ends, you'll have your own $500 ready to start an investment account. Whatever your financial situation, put something aside every time you get paid. $1, $10, $100, 10%, or whatever you can do without unduly burdening your ability to pay bills.
7) If you've fallen into credit card debt, do everything you can to pay at least the amount required for a three year pay-off. You'll find that amount on your bill near the estimated pay-off time for minimum payments. Paying extra on your credit card gives you a guaranteed return of whatever the interest rate is. If you're paying interest of 9%, 13%, 17% or more, then paying extra principal on that debt is about the only "sure thing" you'll ever find.
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