The golden rules of investing (2024)

FAQs

The golden rules of investing? ›

Diversification is the most effective means of managing risk. You'll be less affected by losses in any one investment and losses may even be offset by gains in other investments. 'Market timing' is buying and selling based on the belief you can pick where the markets are heading in the short-term.

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."- Warren Buffet.

1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.

Trade-offs must be weighed and evaluated, and the costs of any investment must be contextualized. To help with this conversation, I like to frame fund expenses in terms of what I call the Four C's of Investment Costs: Capacity, Craftsmanship, Complexity, and Contribution.

A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.

Understanding the 10-5-3 Rule

The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.

"A diamond retains its value because there is a finite supply," he said. "The basic laws of supply and demand maintain that as demand increases, value goes up. With lab-grown diamonds, there is an ever-growing supply but not an overwhelming demand.

Buffett is seen by some as the best stock-picker in history and his investment philosophies have influenced countless other investors. One of his most famous sayings is "Rule No. 1: Never lose money.

What is the rule never lose money Buffett? ›

Warren Buffett 1930–

Rule No 1: never lose money. Rule No 2: never forget rule No 1. Investment must be rational; if you can't understand it, don't do it. It's only when the tide goes out that you learn who's been swimming naked.

Buffett presented a three-step exercise to help streamline his focus. The first step was to write down his top 25 career goals. In the second step, Buffett told Flint to identify his top five goals from the list. In the final step, Flint had two lists: the top five goals (List A) and the remaining 20 (List B).

Always sell a stock it if falls 7%-8% below what you paid for it. This basic principle helps you always cap your potential downside. If you're following rules for how to buy stocks and a stock you own drops 7% to 8% from what you paid for it, something is wrong.

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.

For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.

Action Alerts Plus portfolio manager and TheStreet's founder Jim Cramer says that if you don't do your stock homework you should not be investing your own money.

1) Debit what comes in - credit what goes out. 2) Credit the giver and Debit the Receiver. 3) Credit all income and debit all expenses.