The 10 golden

rules of investing

Most investors place too much importance on trying to choose between specific shares and
bonds. However, it is usually core principles that dictate the success or failure of any wealth
building strategy. These 10 rules outline the building blocks on which investors can create
investment plans for long-term value accumulation.

1. Remember the power of 4. Do not attempt to time the market

compound interest You can’t reach your long term goals with
Make interest work for you short term thinking
Compound interest is simple (pun intended). When ‘Market timing’ is buying and selling based on the
you invest money, you earn interest on your capital. belief you can pick where the markets are heading in
The next year you earn interest on both your original the short-term. In reality, this is very difficult to do.
capital and the interest from the first year. In the third Share market growth has often come in dramatic
year, you earn interest on your capital and the first spurts that can easily be missed if you’re sitting on the
two years’ interest….and so on. Even Einstein sidelines waiting for an anticipated correction or bear
acknowledged the power of compound interest, market to occur. Russell research has shown that
famously calling it the “8th wonder of the world”. nobody can successfully time the market on a
continual basis.

2. Invest on a regular basis over time

5. Allow for inflation
Fight emotion with discipline
Your investments may not be growing as
Buy your selected shares/units at a slow and steady
fast as you think
rate regardless of whether you think the market is
about to rise or fall. A regular investment strategy not Inflation can wreak havoc on a long-term investor’s
only helps to remove the emotional aspect of money. Unless your returns keep pace with inflation,
investing, it also enforces discipline. the purchasing power of your savings erode. Your
investments should be evaluated not only for their
returns before inflation (nominal returns), but also for
3. Combat risk with diversification their returns after inflation.
Diversify across assets, sectors, styles,
managers and securities
Diversification is one of the most fundamental rules of
investing and allows you to take a middle road
through the extremes of market performance, allowing
your investment to grow regularly with smaller
fluctuations along the way. Diversification is the most
effective means of managing risk. You’ll be less
affected by losses in any one investment and losses
may even be offset by gains in other investments.

Russell Investments / The 10 golden rules of investing /1

6. Understand the risk/return trade- 8. Do not look at past performance
off Research shows past performance is not
Get your asset mix right - if you get this indicative of future performance
wrong, nothing else matters Past performance is a very poor guide to future
Asset allocation is the key to meeting your objectives performance. Many investors believe investment
- it is often quoted that asset allocation explains 80- managers worth considering are those that have
90% of a portfolio’s total return. Investing almost performed well recently. This belief is probably based
always requires you to trade off higher expected on the assumption that if a manager has done well
returns with greater risk. The solution is getting the lately, they must be clever and doing something right
asset mix and amount of each asset right. Once you and, therefore, will continue to do well in future.
have decided on the mix that is right for you, stick to Regrettably, past performance is of limited use as
it, unless your circumstances change. A regular new situations can mean that previous strategies
review with a financial adviser will allow you to cease to outperform.
address changing circumstances.
9. Do not lose your balance
7. Stay in the market for the long Rebalance your asset mix to stay true to
haul your tolerance for risk
Time is your greatest ally An asset allocation strategy must have a commitment
to preserve its weightings. As time goes by and
Time has two wonderful properties - reinforcing the
markets experience ups and downs, your portfolio will
power of compound interest and reducing the risk of a
gain in some asset classes and lose in others,
negative outcome. Share markets are naturally
causing your strategic asset allocation and actual
volatile, which means investors require greater
portfolio to fall out of sync; this means you need to
average returns for investing in them. The range of
rebalance.
historical returns for each asset class can guide
investors on the range of returns that can be expected
for a given period. Russell research has shown equity 10. Call in the experts
market volatility is a short-term phenomenon, and that
equity markets consistently rise over the long-term. Discuss strategies which can help meet
your financial goals
If you wanted to design your dream house, you’d call
an architect. Similarly, if you want to design an in-
vestment portfolio that best fits your needs, call a
financial adviser. Quality investment management
advice is not cheap but making poor investment
decisions is a lot more expensive. Financial advisers
are experts in the industry and as such, their advice is
well worth taking.

Important information
The information contained in this publication was prepared by Russell Investment Group Limited. It has been
compiled from sources considered to be reliable, but is not guaranteed. This publication provides general information
only and should not be relied upon in making an investment decision. Before making an investment decision, you
need to consider whether this information is appropriate to your objectives, financial situation and needs. All
investments are subject to risks. Past performance is not a reliable indicator of future performance.
Copyright © 2020 Russell Investments. All rights reserved. This information contained on this website is proprietary
and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell
Investments.

Russell Investments / The 10 golden rules of investing /2