10 Commandments for Investing

Most individual investors make their money over time, not overnight. Whilst their strategies may differ based on their personal needs, the successful investors we’ve known seem to follow the same set of guidelines. At Paul Murray Investments, we call these guidelines ‘The Rules of the Road’. As is often true in life, the rules are simple but not always easy to follow. We hope they will be helpful to you as you consider your own investment decisions.

1. Develop a Strategy

By developing a written strategy, you force yourself to clearly describe what you seek. Having done so, you can better recognise those investment choices that fit your goals.

2. Stick with Quality

The soundness of your overall investment strategy is only as good as the quality of the investments that you own.

3. Diversify

If you can’t predict the future, you must prepare for it. Diversify by owning shares, fixed income investments and cash. With shares, diversify across a variety of companies and industries. Diversify fixed income investments by maturity date.

4. Invest for the Long Term

Most successful investors do not trade the market. Selling a security that has performed well triggers both commissions and taxes. Then it must be replaced with something that will perform just as well, if not better.

5. Address Mistakes Quickly

Not every investment works out, so when it becomes clear that a mistake has been made, don’t delay – address it quickly and sell.

6. Understand Risk, and Take Steps to Help Reduce It

Each investment you own carries some risk. Risk can exist in different forms, so it’s important to understand what it is and try to help reduce risk as much as possible.

7. It’s Not Just What You Make, It’s What You Keep

Tax laws are constantly changing, so ‘tax diversification’ (taking advantage of different tax-advantaged investments, including ISAs and pensions) may reduce the risk that future changes will dramatically reduce tax benefits of anyone investment.

8. Quality Shares Have Historically Outperformed Quality Bonds

History shows that the longer the holding period, the greater the likelihood of success. However, this does not diminish the need for diversification.

9. Focus on What You Can Control

You can’t control the curves life may throw, but you can control making decisions based on investing principles. One of the most important is owning a diversified mix of quality investments for the long term.

10. Review Your Strategy Annually

Your investment strategy should be reviewed at least every 12 months or after a life-changing event.

  1. Diversification does not guarantee a profit or protect against loss.
  2. Past performance is not necessarily an accurate indication of future results. The tax treatment depends on your individual circumstances and may be subject to change in the future. Paul Murray Investments does not offer tax or legal advice.