7 Fool Proof Rules For New Investors

Posted by bpaul as Investments

This post is for all my new investors or any personal investors who needs to take a step back before they lose their shirt with investing in stocks. Over the next few days I will provide you with 7 rules of investing that will keep you out of harms way. Keep these 7 rules within close reach and you will most likely avoid many of the common mistakes all newbie in investing trip themselves up on.

Rule 7- Embrace Diversity: Take a lesson from the recent Bear Sterns crash. A tragically large number of Bear Sterns employees, who were guilty of nothing, other than trust had sunk away the entire or most of their portfolio with the company. Many times this strategy works, and many employees in the past went on to take on an early retirement.

However, companies do fall and crash at times. Can anyone say Enron!! Before their 2001 crash, they claimed they were the “greatest company in the world”. A few months a later major accounting irregularities are reported about the company and all hell breaks loose. The stock plummets, everyone at the top bails, and the only one left stranded were the 1000 or so employees who invested their entire life savings into this so called great company.

I say this to say regardless of how confident or knowledgeable you are in one particular stock, you should always have protection. You protect yourself by diversifying your money throughout different investment vehicles(stocks, mutual funds, real estate, bonds, cash).

Many newbie investors think diversifying only guarantees little returns. They look at diversification as comprosing, and more of a defensive stance. That maybe true but stocks rise and fall at different times, all the time. So it is better to have your investments spread out between two of three solid companies instead of one. Also diversifying your portfolio within two or three financial sectors is also a good thing.

One thing is for sure and that is change is a constant thing in life, especially in the financial industry. There will always be forces or changes that are beyond your control. So prepare yourself and start diversifying.

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