Basic rules of Investing

Do you think that you are far behind many in the process of Investing?

First you need to have 2 things to be in place before starting with the investment process.

1. Security plan ( term insurance,health insurance)
2. Emergency fund

Don’t merge these two things with Investments. These are not Investments.

Even if you have health insurance from your employer, it’s always better to have one on own. As you can’t take your employer health insurance to be granted. It will be terminated once you leave the job.

Emergency fund, it’s basically a fund of 6-12 months of basic expenses you have. For example house rent, food , any emis you pay. It is good to have emergency fund than before Investing. We can’t predict the future. Anything can happen like covid 19.

Note: SIP’s don’t come under basic expenses.

If you don’t have these two plans firmly in place don’t start investing. It’s very risky. Don’t go further for Investing rules. Comeback later.

Do you have security and emergency fund in place? So welcome to “Investing” club mate.

Let’s dive into the basic rules of Investing then

Rule 1

Always know what type of income that you are earning.

There are 3 types of incomes

• Income from paycheck
• Portfolio income
• Passive income

Income from paycheck is most commonly earned income, it’s highest taxed income. So it’s very hard to become rich from this income alone.

Portfolio income, generally derived from stocks, mutual funds,bonds or any paper assets

Passive income, it’s generally derived from real estates, royalties, patents. There are many tax benefits available on this type of income.

Try to have combination of incomes, as passive income and portfolio income classes saves you the most valuable asset for you. That’s “time“

Rule 2

To convert the income from paycheck to passive / portfolio income.

Many have only one question as what if I loose all the money ?

What if I can’t afford to buy real estate property?

There are always what if’s in life. There is always risk to loose.

But only then we have option to win when there is option to loose.

Not taking any risk is the biggest risk

Mark zuckerberg

Rule 3

Buy secured security to turn your paycheck income to portfolio/passive income.

What’s the security? Security can be any stocks or real estate property or bonds or any that can generate income.

Securities can be assets or liabilities. To know more on assets/liabilities visit : Assets

If a security generates income then it’s an asset or else it’s an liability. Thats why we have SEBI (Securities and Exchange Board of India) but not Assets and Exchange board of India.

Sane security can be asset and also liability.

Example: If I buy 10 shares of a stock for 100$ and then sell 5 shares for 150$ and then again in the next month sold remaining shares for just 50$. Due to pandemic. So here you can observe in the 1st transaction I made profit of 50$ per share then it’s a Asset. In the next transaction I get loss of 50$ per share. So it’s became liability.

Rule 4

Investor being asset or liability.

Wait what ? Is it not the security being asset or liability?

Yeah you have read it correct. It’s always Investor being risky factor in Investing.

The Investing process becomes risky when Investors don’t understand the security being asset or liability.

Be greedy when others are fearful

Warren Buffett

A true Investor always can validate the security to know the real value of the security. If it’s a valid security with cheap prices grab the opportunity.

Rule 5

True Investor always be prepared for whatever happens in the market.

Even it’s bull market or it’s bear market. And grabs the opportunity at right time.

But how to know the right time?

It always comes with experience same like chess. There’s always opportunities available.

But don’t hang on to the single opportunity that you had missed. Because you will miss the current opportunities.

Main takeaway is Don’t predict and miss the opportunities that you have right now with negitive vibes.

Rule 6

Good deals attracts money always.

What if you have opportunity but no money to seal the deal?

Validate the deal, if rewards are higher invest in by borrowing or be a mediator to some other Investor and get the partnership in the deal.

If rewards are not that great to invest by borrowing, then it’s not a great deal at all.

So that’s all the rules about.

Main takeaways from the rules are

Don’t rush to invest, validate the deal. You are not in race to win. Generating wealth is not a competition. Slow and steady always wins.

Source: Rich Dad’s guide to investment.