I have compiled 24 crucial rules to help you navigate the investing world. We will look at some general lessons first, then move on to those that are applicable more to stock markets and finally everyone’s favorite new asset class - crypto. Throughout this post, I will also highlight some of my current holdings.
Disclaimer: Nothing in the video is financial advice. For educational use only.
Let’s start with some general Rules
Rule 1. Don't believe analysts and mainstream media.
While analysts can provide valuable insights, their predictions are often wrong. It's essential to do your due diligence instead of following analysts' advice without question. And please remember, mainstream media is not there to make you money. They are there to take your attention which will translate to you losing money. When you hear analysts giving their opinions on channels like CNBC, use resources like TipRanks to look at the analysts' track record. You will be shocked to see the kind of people who get a platform to cause fear among retail investors.
Rule 2. Learn to control your emotions
Emotions can be a significant problem in investing. Fear and greed can lead to impulsive decisions, such as buying high out of fear of missing out and selling low in a panic during market downturns. In the volatile crypto market, for instance, FOMO is the fastest way to lose money. Like all the people buying Dogecoin at $0.60 when it was almost peaking. Make decisions based on careful analysis rather than emotional reactions, and you'll be more likely to see positive outcomes.
Rule 3: Understand your investment.
Before you invest, whether it's in stocks, gold, bonds, real estate, or cryptocurrencies, it's crucial to understand what you're investing in. A shocking 90% of traders lose money, often due to a lack of fundamental and technical understanding. Don't just follow the crowd; do your own research and make sure you're confident in your investment.
Rule 4. Take a long-term view of your investments.
This is quite self-explanatory. Stay away from get-rich-quick schemes, don’t gamble, and adopt a long-term perspective on your investments. For instance, the S&P 500 has historically provided average annual returns of about 10% over several decades. At least with a portion of your portfolio, you should take the “set it and forget it” approach.
Rule 5. Learn about macrocycles.
Understanding economic cycles can give you an edge in your investing strategy. Macrocycles, which include periods of expansion and contraction in the economy, can influence market trends and asset prices. By understanding these cycles, you can better anticipate potential market shifts and adjust your investment strategy accordingly.
Rule 6. Diversify across asset classes.
Diversification is a key strategy to manage risk in your investment portfolio. By spreading your investments across different asset classes, such as stocks, bonds, and cryptocurrencies, you can mitigate potential losses. While diversification is the key to staying safe, for bigger gains, make sure to not over diversify. Let your investments in the SP500 take care of that aspect. When picking individual names look for the winners by doing research.
Now let’s look at rules that are more specific to the Stock Market, starting with…
Rule 7. Understand the fundamentals of your investments.
This involves a deep dive into the key metrics of a company, such as cash flow and the company's management structure. It also includes an analysis of the company's income, revenue, and growth potential. All this data is publicly available, usually through a company's financial statements. The goal is to identify stocks that are priced correctly or incorrectly by the market.
Rule 8. Diversify your stock portfolio.
This involves spreading your investments across different assets to reduce risk. For instance, your stock portfolio could include a mix of large-cap and small-cap stocks. According to Modern Portfolio Theory, diversification can maximize returns for a given level of risk. Again, make sure to not over diversify. The more individual names you pick, the less likely it becomes that you will beat the benchmark.
Rule 9. Value investing is Important.
This means buying undervalued stocks with strong long-term prospects. Warren Buffet, for example, has made a fortune with this strategy. Value investors believe that the market is inefficient and may overreact to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. That’s when you scoop up good companies at lower prices.
Rule 10. Invest in dividend stocks.
These stocks can provide a steady income stream in addition to potential price appreciation. A company like Manulife, known for its regular dividends, could be a good addition to your portfolio. A lot of growth investors will not like this, but as your portfolio grows, consider adopting this approach too.
Rule 11. Consider blue-chip stocks.
These are shares in large, well-established companies with a history of reliable performance. Think of companies like Apple or Microsoft. You might think the companies are too big to make your wealth grow but people have been saying that about a company like Apple for years and it keeps going up anyway. Never underestimate the power of a good company when combined with money printing.
Rule 12. Avoid day trading.
I would like to start by saying, I am not against trading. But day trading is too much of a gamble. While it can seem attractive due to the potential for quick profits, it's also risky and requires a significant amount of time and knowledge. A shocking 90% of day traders lose money, often due to a lack of understanding and the inability to control emotions during the rapid ups and downs of the market. If you want to start trading, try swing trading first. That’s what I do.
Rule 13. Be Ambitious. Don’t expect too much.
This is often hard because we hear about these one-off cases when people 10x their money overnight through meme stocks. You might also hear from your friends how they made 200% returns on a certain stock. Just ignore all of it and focus on your game. Investing is a long-term endeavor, and it's important to have realistic expectations.
Rule 14. Maximize tax efficiency in your investments.
This involves using tax-advantaged investment accounts for stocks. For example, consider investing in stocks through a Roth IRA or TFSAs to enjoy tax-free growth. Tax-efficient investing can significantly increase your net returns over time. Also, make sure to take advantage of your retirement accounts which can also help you get tax refunds that you can then invest too.
Rule 15. Assess your risk tolerance.
Remember your risk appetite and risk tolerance are two different things. Just because you can stomach a lot of risks doesn’t mean you should tolerate risking money you can’t afford to lose. This often depends on your financial situation, investment goals, and personal comfort with risk. If you have a high-risk tolerance, you might be comfortable investing in riskier assets with the potential for higher returns. Just know who you are!
Now let’s look at some rules for investing in crypto. Before we get to that, I want to start by making it clear that to me, Bitcoin and Crypto are different. Bitcoin leads the market, yes but it exists for several important reasons. I am a believer in these reasons.
Rule 16. Invest what you can afford to lose in crypto.
Crypto and Bitcoin are highly volatile, so only invest money you can afford to lose. For example, you might limit your crypto investments to 5-10% of your total portfolio. You might not agree with that. In that case, treat all of it the same. That money is as good as gone. Remember, extremely high risk/high reward.
Rule 17. Assume everything is a scam except Bitcoin.
In the crypto world, scams and fraudulent schemes are unfortunately common. To safeguard your investments, it's prudent to approach every opportunity with skepticism, except for Bitcoin, which has proven its resilience and staying power over time. It is the only truly decentralized network and will remain king in its use case. While not all altcoins are scams, thorough due diligence is necessary before investing in any crypto to avoid falling for the 1000s of scams!
Rule 18. Not your keys, not your Bitcoin/Crypto.
One of the fundamental principles of Bitcoin and crypto ownership is maintaining control over your private keys. If you don't control the keys, you don't truly own the asset. Storing your Bitcoin or other cryptocurrencies in a wallet such as Ledger or Trezor is very important. You controlling the keys reduces the risk of losing your assets to exchange hacks or custodial failures. Did you know that 20% of all Bitcoin is lost and a lot of it is due to people losing their keys?
Rule 19. Understand the technology behind cryptocurrencies.
To make informed investment decisions in the crypto space, it's important to understand the underlying technology. Blockchain, the technology behind Bitcoin and other cryptocurrencies, is a decentralized ledger that records all transactions across a network of computers. Understanding how blockchain works, as well as the specific technologies and mechanisms of individual cryptocurrencies, can help you assess their potential value and longevity. Bitcoin is the only true blockchain use case for many. It is renowned for its security and has set the standard for other cryptocurrencies, which they might never achieve.
Rule 20. Diversify your crypto portfolio.
Again, a very obvious rule. Keeping Bitcoin aside, diversifying your crypto portfolio can help manage risk much better. Please don’t go all in on Cardano, Doge, Solana, or even Eth. Investing in a variety of cryptocurrencies can expose you to different projects and potential growth opportunities within the new and evolving space.
Rule 21. Time your crypto investments.
This is the opposite of the advice you get for most investments. Timing the market in crypto is more important than time in the market. A lot of you might disagree but because of the nature of crypto it may not work out well for you. When it comes to Bitcoin, it is different. DCA and chill is the best strategy.
Rule 22. Stay updated with crypto market trends.
The cryptocurrency market is constantly evolving, with new developments and trends emerging regularly. Staying informed about the latest news, technological advancements, and regulatory changes can help you make better investment decisions. This is especially important during the “Crypto and Bitcoin are dead” phases. A lot of work gets done during that time. Know what’s happening in DeFi, with decentralized gaming, with the Bitcoin ETF to stay ahead of the curve.
Rule 23. Consider the liquidity of cryptocurrencies.
Liquidity is an important factor to consider when investing in cryptocurrencies. It refers to the ease with which an asset can be bought or sold in the market without affecting its price. Bitcoin is known for its relatively high liquidity compared to other cryptocurrencies, making it easier to enter and exit positions. High liquidity can also be indicative of a healthier, more stable market.
Rule 24. Set clear financial goals for crypto.
When venturing into crypto, clarity in your financial goals is crucial. Decide if you're aiming to increase your dollar wealth or accumulate more Bitcoin through altcoin trades. This decision will guide your investment strategy, whether you prioritize holding Bitcoin or diversifying into altcoins for potential gains. Remember, each approach requires different tactics and risk considerations.
Bonus
Rule 25. Have fun with your investments.
Remember, investing is not just about making money. It's also about learning and enjoying the process. So, enjoy the ride and celebrate your wins, no matter how small!
And that's it! 24 rules to help you make money in 2024 with stocks and crypto. Remember, these are just guidelines. Always do your own research or consult a financial advisor before making investment decisions. As we enter 2024 in less than a week, I wish you all the best with your money and investments. I hope you make a ton of money next year and investments grow exponentially. And always remember - Keep learning and stay on top of your finances!
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