1. It is never too early to start investing. Everyone has financial goals; whether it is to retire at 40, buy a mansion in the hills or have their own Rolex collection. The sooner you begin investing, the less money you need to put away each year to reach the same goals, simply because you started early.

Compound interest is the interest on an investment that is reinvested, and so becomes the new principal amount on a new investment. Compound interest is an investor’s best friend because it causes money to grow at a faster rate than simple interest and requires no extra effort. It does, however, take time to accumulate, which further emphasises the importance of starting early.

2. You don’t need to be rich to invest

You don’t need a large sum of money to begin investing. Many people think that unless they have a sizeable amount to invest it is a waste of time because they will not earn high enough returns for it to be worthwhile.

This is quite false; the purpose of investing is to accumulate wealth over time and as we say ‘every mikkle mek a mukkle’. Invest a small amount today and watch it compound over years. If starting out with a small amount would not benefit clients, then investment firms would not be willing to open accounts with as little as JA $5,000.

3. Don’t put all your eggs in one basket

Diversify, diversify, diversify! This is easily one of the most important investment principles. If someone invests all their money in one company and that company goes bankrupt, then he/she will lose all their capital.

This is why it is imperative that investors allocate their lump sum to different companies, types of investments, or global markets. As some markets fall, others will rise and this should cancel out short-term losses.

4. Know what you are investing in

Never buy anything in life just for the sake of buying. Always have a reason. If you are investing in a stock, know why you are investing in that particular stock. Is it because you expect the stock to increase in value in the near future or because the company pays great dividends on a regular basis?

If you are investing in a bond, know why you are investing in that particular bond. Is it a government bond that is low-risk, or a corporate bond that pays higher coupon payments? What is the bond rating? Is it investment grade or a junk bond?

If you are investing in ETFs, know why you are investing in that particular ETF. What index does this ETF track? Is it a commodity, and if so, what is likely to happen with that commodity in the future?

5. Risk can be good and bad

Each investor must determine their own risk tolerance. This is the level of risk they are comfortable enduring.

Every stock, bond, and ETF carries with it a certain level of risk. The general rule is the greater the risk, the greater the reward. However, if the possibility of losing a couple thousand dollars is terrifying and keeps you up at night, then maybe riskier investments are not right for you. It would be smarter to buy into safer investments even though the returns are not as high.

On the other hand, if you are a risk-taker and think that higher returns justify exposing yourself to greater risk, then by all means go ahead.

6. Be prepared to weather the storm

Markets in general are affected by any and every significant real world event such as rising or falling interest rates, a major political decision, war, terrorism, natural disasters, and so on. This means that by nature they constantly fluctuate.

It can be very scary and nerve-racking, especially for new investors, when the market takes a sharp down-turn.

Suppose an investor bought 1,000 shares in AAPL at $115, and the price falls to $95, then he would be down by 17 per cent or $20,000. That can be a very scary position to be in.

New investors may panic and be tempted to sell their shares in order to cut their losses in case the price dips further, while experienced investors would understand that AAPL is fundamentally strong, will recover, and wait until it does so before selling.

7. Don’t go all in at once

This requires paying constant attention to the markets. It is nearly impossible to pick the perfect moment to buy a stock where it will only go up. Fundamentally strong companies are still subject to market volatility which will cause their stock prices to drop temporarily.

To combat this, avoid investing all your money at once. Instead, invest a portion and then watch how the market acts. If the stock price goes up, you are now in a better position than you were before, but if it goes down, then you have the opportunity to buy more stocks at a lower price. Eventually when the stock price goes back up you will earn greater returns than the first batch purchased.

8. Be patient

While saving can be thought of as a short-term activity, investing on the other hand is a long-term activity. The benefits of investing might not become apparent for a year, five years, or even 10 years depending on the instrument. Certain government bonds can take up to 20 years to mature!

Investors must be prepared to lock away their investible funds for a long term period

9. Don’t over-invest

It is never wise to over-invest and put yourself at unnecessary risk. Like I mentioned previously, investing is a long-term activity and funds need to be given time to appreciate. Money used for investing should be money that you will not need for the time period of the investment. Before you decide to invest, ensure you have enough savings to cover current expenses such as utilities, rent, food, gas, and emergencies.

10. Stay Informed

As an investor it is your responsibility to stay informed and know what is going on globally, and in the markets. Read up on your investments. Seek out reputable print, radio, television and online sources, and keep up on market trends and the worldwide economy. It is critical that you understand what you’re doing with your hard-earned money.

Matthew Williams is a brokerage associate at Stocks and Securities Limited.