Essential Rules for Modern Investors

In the modern world of high-tech stock trading, some of the rules are more complex than they were a few decades ago when most people used brick and mortar brokerage firms to execute trades. Today’s traders tend to do their own buying and selling from the comfort of a computer chair at home. Yes, there are still brokers involved, but most of them are hands off platforms that charge low commissions and let you make all your own decisions.

So, in some ways, things are simpler for those who trade stocks and bonds online, but in other ways the scene is more complicated. For one thing, you’ll need to know how to place orders, monitor price changes and get out of a trade that’s failing. Here’s a summary of what today’s market enthusiasts need to know in order to succeed in the market.

Diversify

Thirty years ago, we relied on full-commission brokers to make certain our portfolios are diverse. Nowadays, individuals need to keep track of every security they own, making sure not to let holdings get too lopsided with stocks from one or another sector. Diversification is one of the oldest investing guidelines there is. To achieve it, most people attempt to own at least seven different stocks in multiple sectors. There’s also a school of thought that says you should own a few high-priced issues, a few middle-priced, and at least one or two low-priced stocks. A diverse basket will protect you from all sorts of economic fluctuations, price spikes, bad company news and other hazards of Wall Street.

Consider Hard Assets

Be careful not to assume that the term investments refer only to stocks and bonds. Some of the world’s most successful financiers advocate owning hard assets like gold bullion, art works, wine and real estate. If you put at least a small percentage of your capital into hard assets like these, you’ll not have to lose sleep when Wall Street is jittery, or the economy is in a downward cycle.

Get an Education

No one can ever take your education away from you. A degree is forever. That’s why one of the best investments you can make is in yourself. Even if you can’t afford the cost of college or grad school, it’s smart to take out a student loan to finance your education. The right degree can pay for itself a hundredfold during your career. Maybe that’s why millions of adults turn to student loans when they decide to add a college or graduate degree to their resumes.

Use the 2 Percent Rule

To preserve capital, use that old, reliable standby known as the 2 percent rule. How it works is to never put more than two percent of your available trading capital into a single trade. If, for example, you have $25,000 to invest in stocks, never place more than $500 into a single trade. The rule forces you to diversify your holdings and consider each transaction carefully. Many famous business leaders use this guideline to protect their fortunes.

 

Disclaimer: This content does not necessarily represent the views of IWB.