When investing in stocks, exchange traded funds (ETFs), fixed income or any other investment tool, it is important to have guidelines that you adhere to in any economic climate.
Next Up Research outlines the some commandments to live by when investing; we’ve got a few ideas we’ve thrown in, as well. (Note that the link to the original story is a pdf).
1. Really know the fundamentals. Do some research to find out what’s happening and to further support your decision to make the investments you do.
2. Be proactive and not reactive. Try to anticipate and be ready for something down the line to avoid getting caught off guard. This is tough because no one can be 100% certain what will happen in the future. A good way to abide by this commandment is to have a strategy for entering and exiting the markets, and stick with it.
3. Don’t over analyze investments. Often the best investments are those that are easy and intuitive. By letting trend lines be your guide, you can save yourself hours of pontification and just let the markets tell you what to do instead.
4. If you make a mistake or are wrong, fess up to it and admit it. Wise investors always examine their behavior and identify areas where they can do better next time. Nobody is perfect. Not even you (sorry!).
5. It is all about information and insight. If information is proprietary and you have insight into it, it’s especially valuable. These days, the internet makes information easier than ever to come by (but, as always, be discerning about what you read, too, and consider the source).
6. Be diversified with your knowledge base. When choosing an ETF, check the diversity of what’s in it. Is it heavily skewed toward two or three companies at the top, or is it equally spread out among a couple dozen?
7. Find your reasons. Why do you want to buy? What are your reasons? Always know why you’re taking a position and what your own opinions are. This can be especially helpful if you’re nervous about re-entering the market, even when all signs point to “go.”
8. Be passionate about investing, but not about the investment. Don’t let your emotions drive your investment decisions. Sticking to a strategy in which you enter and exit at specific signals will help you keep your emotions on the back-burner. Your ETFs don’t have feelings – neither should you (at least when you’re investing).
For more stories on investment strategies, visit our trend following category.