How Not To Lose Money In Investing? (Five Basic Rules)

Be it investing in cryptocurrencies, equities, gold, commodities, bonds or any other asset class, gains can never be a surety.

In fact, there are more ways to lose money than to make money.

It is therefore important to follow some strategies and discipline to ensure that losses are minimized and the profits are maximized.

Let’s look at some basic ideas that can ensure that investors have a portfolio that generates robust returns.

Rule One – Remain Diversified This is the most important rule of investing. Don’t put all your eggs in one basket. Even if it’s about investing in cryptocurrency.

It’s important to remain diversified across asset classes. This includes investing in equities, commodities, bonds, gold, silver, cryptocurrency, cash, real estate, among others.

The reason to diversify is the fact that not all asset classes move in the same direction. As an example, gold hardly moved between 2012 and 2018. During this time, equities surged higher.

If an investor has invested only in gold during these six years, returns would have been minimal. There are several similar examples to prove that it makes sense to remain diversified.

Rule Two – Don’t Chase Hot Asset Classes It’s best to avoid investing in asset classes when there is an irrational exuberance. Asset markets have bubbles from time-to-time. The simple rule is to avoid “too hot” asset classes.

As an example, Bitcoin skyrocketed to $20,000 in no time. It suddenly grabbed the headlines and I know several investors who purchased Bitcoin between $17,000 and $19,000.

Bitcoin might eventually surge above $20,000 in 2021. However, investing at $17,000 was not a good idea.

Similarly, U.S. equities peaked just before the financial crisis of 2008-09. Many retail investors were trapped as the S&P 500 plunged. It took years to regain those levels.

Rule Three – Be Your Own Analyst I am a financial analyst and I provide recommendation on equities, gold and several other asset classes. However, I do advise investors not to blindly follow by recommendation.

The simple success strategy in asset markets is using common sense. It’s not difficult to understand any company or asset market.

Therefore, investors can read or seek recommendation. However, it’s important to go back and do your own homework. No one takes responsibility for your losses.
Ensure that you are convinced about an investment.

Rule Four – Don’t Take Excessive Risk There are different types of asset classes. Some are very risky while others are risk free. In general, risk free assets deliver lower returns than high risk assets. Some examples of low risk assets include government bonds, investment grade corporate bonds, gold and investment in land.

On the other hand, risky asset classes include stocks, commodities and potentially cryptocurrencies (given the volatility).

The rule here is to have a fine balance of risky and low risk asset classes. Having very high exposure to risky asset classes can result in capital erosion.
Similarly, having exposure to only low risk assets will result in returns that might not even beat the rate of inflation.

Rule Five – Don’t Over trade; Invest For any asset classes, investors can hold the investment for the long-term or trade for the short-term.

Trading sounds exciting. In particular, when trading companies offer lot of leverage. Even in cryptocurrencies, leveraged trading is on offer.

As an example, it implies that with $1,000, you can buy stocks or cryptocurrencies worth $10,000. However, this is for the short-term. If you are right, you make big money. If you are wrong, you lose your capital.

Therefore, my advice is to avoid leveraged trading. Invest in cryptocurrency, gold, equities, but for the medium to long-term.

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