The most critical part of investing is having an investment plan that will help guide you to achieve your goals.
The ten principles of successful investing are the following: (1) know yourself, (2) understand risk, (3) stay diversified, (4) invest low-cost and tax-efficiently, (5) invest for the long run, (6) use caution if you are investing in individual assets, (7) monitor portfolio performance against benchmarks, (8) do not waste too much time and energy trying to beat the market, (9) invest only with high-quality, licensed, reputable people and institutions, and (10) develop a good investment plan and follow it closely.
Asset classes are broad categories of investments with specific and similar risk and return characteristics. The three major asset classes are cash and cash equivalents, fixed income (bonds), and equity (stocks).
The difference between investors and gamblers is that investors are willing to assume risk because they expect to earn a risk premium when they invest, whereas gamblers are willing to assume risk even when there is no prospect of a risk premium.
The main goal of cash and cash equivalents is to preserve capital. The main goal of fixed-income investments is to provide income and to earn returns in excess of inflation. The main goal of equity (stock) investments is to provide growth and to earn returns in excess of inflation.
