3 Rules for New Investors

Most people are afraid of investing because they don’t understand it. They tend to sit on the sidelines until they read about novice investors who become overnight millionaires, and then they jump in for fear of missing out (FOMO) without any training or understanding.While success stories make for good news, I believe that these articles are detrimental to new investors because they highlight speculation without identifying the risks taken and they fail to discuss the correct foundations of sound investing.While I cannot delineate everything you need to know about portfolio theory here in this brief article, here are some pointers that will help you with investing:Don’t Lose Money. A good foundation for sound investing comes from Warren Buffett—”Rule #1: Never lose money. Rule #2: Never forget rule #1.” Unless you’ve been trained to perform heart surgery, you probably wouldn’t if given the opportunity because you don’t understand the basics of what you’re doing. Similarly, you should not invest until you know the basics of investing; otherwise, you will likely break rule #1.Diversify. The purpose of portfolio diversification is to control and minimize risk. Portfolio diversification will get you singles and doubles but will rarely result in a grand slam. The easiest way to diversify a portfolio using Modern Portfolio Theory is to invest in mutual funds and index funds. But beware of the fees they charge! Read Money by Tony Robbins for more on this.Seek Wise Counsel. Investing in any market includes volatility risk, market risk, and many other investment risks. New investors often disregard risk by entering into new territory with no training and minimal research. Before investing, seek the wise counsel of a seasoned professional (who is not your family). There are many investment advisors out there, and not all of them have your best interest in mind, so seek consensus from multiple professionals before acting.When done correctly, portfolio construction can minimize risks and help you meet your financial goals. If you’re a novice investor and you don’t know what you’re doing yet, please set up a no-obligation, free meeting with me by clicking this link https://calendly.com/scottgardner/chat or by calling my office at (702) 228-0500.