Investing Money Rules Part Three

Invest the money and the investor requires discipline to follow a few golden rules to minimize the financial risk, as far as possible. In this article, the last of a 3 part series to invest money, look at the last 4 excludes the 10 golden rules that must be followed so that a program of financial investment to be as effective as possible for the investor . Remember, these rules are not in order of importance and must be applied as a whole.

Rule Seven: diversify your investments

Diversification is the best way to reduce investment risk. In simple terms, this means you should not put all your eggs in one basket. We recommend that you diversify your investments in different types of investment products, risk levels, different markets and different market segments, both at home and abroad. Even a person with little money to invest can achieve diversification through unit trust and life assurance endowment policies.

Rule Eight: Taking time to compare products

If you make good decisions on offense there will be little need for you to sit in fear of your non-performing investments. This will require a little 'work on your part.

It is very unwise to hand over a bundle of money for an investment adviser and say: "Go and make grow this for me." You should understand the products in which the money is invested and the basic options available. At least you should know the difference between the asset classes: stocks, bonds, cash and property.

You should also know the basic principles of collective investment products such as mutual funds and life insurance policies provided. You should never invest your money on a product you do not understand.

When you compare the products you need to consider a number of factors. These include: risk and return; expenses, including commissions, duration of contracts, warranties, the type of investment vehicle, etc.

A word of warning: you must insist on the details of the costs of your investment, because every percentage point taken off the cost also has a compounding negative effect. Two percentage points can cost millions in the long term.

Rule Nine: Make sure you get an adequate return

You should always take inflation and taxes into account in assessing investment returns. If there is an inflation rate of ten percent and you're getting a return of five per cent you are actually losing money. And then you have to take into account tax. You must always make sure that you are getting a return that is positive after taking both inflation and tax into account. Historically, investments that provide significant post-inflation, after-tax long-term yields were parties, both locally and overseas markets.

Rule Ten: Never Forget The effect of compound interest

Compound interest is the factor that put money to work, and works best in medium to long term. The longer you leave money invested makes more money by creating their own growth in the coming years.