5 Golden Rules of Investing

Most investors put much too much emphasis on deciding between individual stocks and bonds. However, the success or failure of any wealth-building strategy is normally determined by core values. These ten rules define the building blocks that investors may use to construct long-term value accumulation investment plans.

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1. Invest on a Regular Basis Over Time

Regardless of whether you believe the market is about to rise or fall, buy your chosen shares/units at a slow and steady rate. A consistent investment approach not only removes the emotional element of investing, but it also instils discipline.

2. Embrace Dollar-Cost Averaging

Dollar-cost averaging is the practice of spending a set sum of money in a specific investment on a regular basis, usually monthly or quarterly. This technique is most often used for riskier investments like stocks and mutual funds, as it has the ability to reduce timing risk.

Fear of entering the market at an inopportune time may trigger inaction or rash decisions. Dollar-cost averaging smooths out market volatility by allowing you to buy more shares when prices are low and fewer shares when prices are up. This is the cost-averaging benefit of the strategy.

3. Combat Risk With Diversification

Diversification is one of the most important investing principles because it helps you to take a middle path between market extremes, allowing your investment to rise steadily with fewer fluctuations. The most effective way to manage risk is through diversification. Losses in one investment would have a smaller impact on you, and losses may even be offset by gains in other investments.

4. Stay Invested

Time is your greatest ally. Time has two great properties: it reinforces compound interest's power and reduces the risk of a negative result. Since stock markets are inherently unpredictable, investors demand higher average returns when investing in them. The historical return ranges for each asset class will help investors predict the range of returns that can be anticipated over time.

5. Avoid Attempting to Time the Market

Buying and selling based on the expectation that you can predict where the markets will go in the short term is known as ‘market timing.' In fact, this is extremely difficult. If you're waiting for a stock market correction or bear market to happen, you may miss it as share market growth often comes in dramatic spurts.

Remember, time in the market is more valuable than timing in the market.

Apex EP is an authorised group of Financial Adviser representatives from Professional Investment Advisory Services Pte Ltd.

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