The golden rules of investing

Whether you’re taking your first steps or are already an experienced investor, following these golden rules could really help you to InvestSmart.

The golden rules of investing

Investing can help you meet your financial goals and the better the investment decisions you make, the more chance you have of succeeding.

While nobody can make the best investment decision every single time, following these golden rules could help you to get more from your investments over the long term.

1. If you can’t afford to invest yet, don’t

It’s true that starting to invest early can give your investments more time to grow over the long term. However, it’s important not to begin investing until you can truly afford to.

Here are some steps to take to get your day-to-day money matters sorted before you begin investing.

  • Keep some money in an emergency fund with instant access
    Having some money that you can get your hands on quickly could help you cope with life’s ups and downs, without needing to dip into your investments.
  • Clear any debts you have, and never invest using a credit card
    Interest and charges can mount up fast if the balance isn’t paid off, and are likely to exceed any investment returns that you make.
  • The earlier you get day-to-day money in order, the sooner you can think about investing
    This will allow you to work out what you can afford to invest. Getting your everyday money matters sorted also gives you more opportunity to invest regularly, increasing your chances of meeting your goals. 

To find out whether you’re ready to begin investing, read our should you invest article.

2. Set your investment expectations

Before you begin to invest, think about what returns you’re realistically expecting and be clear on what your investment goals are.

The greater the potential returns, the higher the level of risk

Make sure you understand the risks and are willing and able to accept them.

Different investments have different levels of risk. It’s important to think about how comfortable you are with the value of your investment going up and down while you’re holding it. You should also think about whether you’d be able to cope financially if your investment made a loss.

While most investors like the idea of high returns, they often come with an increased risk of losing your money. With high-risk investments, you should be prepared to lose all of your money.

Read more about how to balance risk and returns.

Target a realistic rate of return in the context of other available investments

Risks vary widely across investment markets and products, and returns can be very difficult to forecast. So be wary of products that raise expectations of unrealistic returns – these could come with risks you’re not willing or able to take.

And remember, if it sounds too good to be true then it could be a scam. Visit ScamSmart to find out how to protect yourself against investment scams.

Don’t forget your charges 

You should be prepared to pay an investment provider charges/fees for their services. However, these can mount up over time, eating into your investment returns. So it’s important to compare costs and make sure you’re not paying for any services that you don’t want or need.

3. Understand your investment 

Make sure you understand what you’re actually investing in before you hand over your hard-earned money. Your future finances are linked to how your investments perform so it’s important you know the key information before you invest.

Make sure you know things like the level of risk you’re taking, the factors that might affect how your investment performs and how easy it is to get your money out when you need to. Before you invest, take time to do some research of your own – and never invest in a rush or in anything you don’t fully understand.

Some investments are professionally managed and can help you to align your long-term investment goals. For more information on these types of mainstream investment options, read about the advantages of mainstream investments.

It’s important to check whether the firm you are dealing with is authorised by us to provide the service or product you are buying. You can check whether the firm is authorised using the Financial Services Register.


But remember – just because a firm is authorised, it does not mean everything they do and sell is regulated. You may not be protected, and you may not receive compensation from the FSCS or FOS, if you use the services of a firm that is not authorised to provide them and things go wrong.


4. Diversify

In an uncertain world, putting all your investment eggs in the same basket can be risky.

Spreading your money across a range of different companies, asset types and geographical areas will reduce your reliance on any one to perform. So if some of your investments perform poorly and make a loss, your other investments might not. Therefore, many people choose to invest in a fund – where an investment manager will choose which assets to invest in on your behalf.

Find out how spreading risks through diversification can help you become a smarter investor.

5. Take a long-term view 

Investing should not be viewed as a short-term solution to a problem. Investing over a timeframe of at least five years can give your investment more opportunity to ride out any short-term performance dips. 

Look beyond the short-term 

The factors that drive the day-to-day moves in markets are notoriously difficult to predict. Even over a matter of weeks or sometimes months investment returns can be erratic. Trying to time the market increases your risk of buying or selling at the wrong time. By investing over a longer timeframe, you’re more likely to benefit from trends that can support positive performance over a matter of years.

Investing monthly over five or more years can smooth out returns 

While some may have a lump sum to invest immediately, others invest regular sums on a monthly basis over several years. This can help to even out the effect of short-term market moves as a regular monthly investment buys more during months when prices have dipped, and buys less when prices are higher.

Think about how to access your money if the unexpected happens

Ideally, you won’t need to touch your money for at least five years. But life can sometimes take an unexpected turn. A change of personal circumstances, perhaps due to a career change or illness, could mean that you need access to your money urgently. So check for any notice periods or fees that you’d need to pay just in case.

Even when investing in the long term you should still make sure you are comfortable with what you are investing in and the risk that you could still end up with less than you put in.

6. Keep on top of your investments 

It's a good idea to periodically review the performance of your investments. Choices that were right for you two years ago may not necessarily be the best for you now. Whether you speak to an independent financial adviser or conduct your own review, it makes sense to reassess your investment choices regularly. 

Take stock of your investment performance 

Some investments you hold will almost certainly have performed better than others, so the attractiveness of some over others may change over time. As higher risk is by no means a guarantee of higher returns, reviewing what you hold can also help you keep on top of the overall level of risk you’re exposing your money to.

Your immediate personal circumstances may have changed 

Your investment choices depend on many factors, some of which may be unique to your own circumstances. For example, if a new job brings a higher income you might have more money to invest each month, and you may be more prepared to take more risks with, in the hope of higher potential returns. Regularly reviewing how and where you’re investing can help to ensure your investments still suit your personal circumstances.

Your investment objectives evolve over time 

Whether you’re trying to build up investments for a particular life event – like funding a major career change – or maximising your pension fund, what you’re looking to achieve with your investments can change over the years.

Up next

Should you invest?

Tips on getting your immediate finances in order before you invest

See our tips

Risk and returns

What do we mean by risk and returns? And do you understand your risk profile?

Learn more

Mainstream investments

Many investors favour them for peace of mind

See the advantages