15 Investing Principles Only Rich People Know

Warren Buffet once said, you only find out who is 

swimming naked when the tide goes out. What the  

investing guru meant by this is, it is only 

during a weak economic environment that the  

real investors succeed. When the environment 

is good, it’s easy to neglect all caution.

During this time, almost all investment options 

do well and investors take home positive returns.  

However, during an economic turmoil, is when 

investors really see the need of applying the core  

principles of investing. These principles are so 

important but only the few elite know about them.  

And never has it been a better time to learn 

how to invest like now. Several parts of the  

economy have been tanking with after-effects of 

the pandemic and uncertainty due to a possible  

world war, but still some rich people have made 

more money than ever. And how did they do it?

Today here on practical wisdom,  

we are going to share with you ten principles 

that will get you investing like the rich.  

So make sure you grab a pen and paper and 

watch till the end. So, before we begin,  

give this video a like and welcome and subscribe 

if you are new here. Now let’s begin, shall we?

15 - Have a personal financial roadmap 

The very first principle is to understand 

your financial situation in totality. This is  

especially important if you have never created 

a financial plan before. You need to evaluate  

your current financial position, determine 

your risk tolerance and establish your goals.

Whether you are doing this with 

a professional or by yourself,  

this is the initial step that you have to start 

from. As you do this, there’s one very important  

aspect that you always must keep in mind, 

that is honesty. As cliché as that sounds,  

you need to be as transparent as you can, the 

truth is its not guaranteed that you will make  

the money back, but if you get your roadmap well 

drafted then chances are, you’ll make money.

14 Invest Early

It has been proven that investing early is  

more effective than waiting to have a lump sum to 

invest with. Start with what you have and slowly  

build your portfolio. By investing early, you 

will take advantage of the power of compounding.  

If you didn’t know, compounding is simply using 

up the money you have earned, to make more money.  

So, you will not only earn from what you have 

invested, but that accumulated capital gains  

interest and dividends that you have earned. A 

two-year difference in investing could translate  

in thousands of dollars potentially lost. 

 

13 Diversification 

The art of diversification is what most wealth 

managers and successful investors have mastered.  

Never put all your eggs in one basket, is a good 

principle to follow. While that may seem like  

common sense, you’ll be surprised at how common 

sense isn’t common when it comes to investing.  

Diversification is actually quite simple. 

It means you pick a couple of investments  

instead of just one. By having a group 

of investments, you lower the risk.  

Look at this scenario, if you invest in one 

company, then the company goes bankrupt,  

depending on your share type, 

you stand to lose a lot of money. 

As you diversify, ensure you 

select a wide scope of investments.  

Different asset categories throughout history 

have never moved up and down at the same time.  

This means when stocks go down, chances are bonds 

are still up or have gone down but never at the  

same exact rate. But by having a portfolio, you 

are guaranteed that your losses are limited.

12 Leverage is key in building wealth

Get leverage to build substantial wealth.  

You are only limited to what you have 

and if you want to build massive wealth,  

you will have to seek some leverage. Leverage 

comes in multiple forms. Financial leverage  

is the use of other people’s finances to increase 

the pool of available funds to build more wealth. 

Time leverage is consumption of other people’s 

available time since you only have 24 hours in  

a day, but in actual fact it’s more like about 

sixteen since the rest you’re probably asleep.  

Knowledge leverage is the use of other people’s 

expertise since you don’t know everything,  

and someone out there knows more about investing 

than you do. Systems and technology leverage,  

refers to use of other people’s established 

systems that are more effective and efficient.

11 Be vigilant of fraud

There are fraudsters everywhere,  

and scam artists are always looking for their 

next target - Don’t be one. Most of the time,  

these fraudsters use highly publicized news 

items to lure investors. The opportunity they  

provide is often too good to be true. To avoid 

falling victim to such, ask as many questions  

and request for official documents. Also, involve 

a lawyer to evaluate entities before investing.

10 Cash is the King

If anything,  

the pandemic has really shown us 

the importance of a cash reserve. 

Before making any financial plan, 

ensure you have a cash reserve.  

The reserve should be between three to six months’ 

worth of expenses. Start by listing down your list  

of expenses and the amounts, so you know exactly 

how much you spend every month. The people that  

had reserves when the pandemic first hit was 

probably not so affected by the economic turmoil.  

The reserves enabled them to sail through 

the turbulent waters completely untouched.

We have no control over economic changes, but 

we do have control over our emergency funds.  

Ensure you have the cash stacked somewhere 

safe just in case of any unprecedented change.

9 Deadly Debt 

Advisors point out that debt is both good 

and bad. Well, it has both positives and  

negatives. Debt is great when you’re using the 

money for investing and not to cover expenses.  

In fact, most high net worth individuals 

increase their money through debt. But,  

the reality is the people in the best financial 

shape are those who are completely debt-free. Even  

sophisticated investors and business men get into 

trouble if their debt loads aren’t well-monitored.

By taking debt you are obligated to constantly 

make the repayments according to the agreements  

and ensure you meet all timelines. Anything 

could happen which could hinder your ability  

to make the repayments in a timely manner.

We are not entirely against debt, if you have to,  

take it, but only for investment purposes 

and not to cover personal expenses.  

Also, if you really have to take on debt, create 

a plan to get rid of it as soon as possible.  

It’s not always guaranteed that your income 

streams will sustain loan repayments.  

A great example is the Russia - Ukraine war, 

citizens within those regions who have debt  

are still obligated to complete their repayments 

regardless of the current situation. Despite most  

of them losing jobs and migrating into other 

regions they still have to pay their loans.

8 Time-frame is Key

It is important to  

understand your time horizon before 

building an investment portfolio.  

By understanding this, you are able to keep 

turbulent market conditions in perspective.  

For example, a long-term investor is not afraid 

of the bear market. In fact, it provides a  

great opportunity to trade at discounted 

rates and make good returns after a given  

period of time. See how understanding your time 

limits helps you draft a great investment plan.  

It is very irresponsible to build a portfolio 

without establishing when you will need the money.

7 Dollar-cost averaging

This refers to the process of periodically adding  

cash into investments at specified intervals. 

This could be once a month or a week based on  

your ability. Some people are emotional about 

sports, others politics, the climate, and so on.  

So, it’s only reasonable to be emotional 

about your investments. However, the truth is,  

emotionally-based decisions almost never work well 

in the world of investing. However, by setting up  

an automated investment plan into your accounts, 

this eliminates emotions from the whole process,  

it reduces the desire to time markets, and 

enables one to build wealth gradually over time. 

6 - Re-balance to make money

Re-balancing is based on the theory,  

‘buy low and sell high’. It involves adjusting the 

weights of the assets within a portfolio to take  

advantage of the changes. This practice allows 

you to sell positions that increased in value  

and simultaneously buy the positions that 

went down. This enables maintenance of the  

original asset allocation in line with 

the portfolio holder’s risk tolerance.

5 Conservative bonds are a safe haven

When the markets are soaring,  

many investors don’t pay attention to quality 

fixed income sources. Everyone is rushing to  

get the high soaring technology stocks. And, it’s 

OK, there’s nothing wrong with that. But reality  

is most of the time when the market is doing 

really well, turbulence often comes in. Yes,  

you will make some returns but for how long before 

there’s a downturn. Here is where bonds come in.  

Bonds serve a crucial purpose in portfolios. 

They provide a cushion for turbulent markets  

by allowing investors to withdraw from 

an asset that didn’t plummet in value.  

And dismissing bonds as a core investment 

strategy is being short-sighted.

4 Returns and risk go hand in hand

Every investor out there is thoroughly  

searching for that highest return option with 

the least risk. Finding the balance is the hard  

part since the higher the returns promised, the 

higher the risk of losing the investment. Risk  

could come in many ways. It could be illiquidity, 

poor credit or leverage. Illiquidity refers to the  

inability to convert an asset into cash fast.

Economic conditions are also very turbulent  

and play one of the key roles in 

determining the amount of return.  

So as you invest, always keep an eye open, every 

lucrative opportunity has a high level of risk.

3 Boring always beats exciting 

Human beings love exciting things, they tend 

to go for the next best thing in the market.  

However, there’s a thin line between an 

exciting opportunity and a viable opportunity.  

And most people don’t see it. You will find 

most investors confuse an exciting idea for a  

good investment option. This excitement is often 

packages in the latest fad, a new business model  

that will change the way of doing business, the 

latest technology or even an exclusive deal.  

Instead of focusing on the fundamentals, most 

focus on the hype. Remember what we said earlier  

on mixing emotions with investment decisions, 

I hope you now understand the point better. 

To avoid being lured like a child with candy, 

stick to the boring typical investments. This  

could be index funds, blue-chip 

stocks or even high-grade bonds.  

You might miss out on the next hot IPO, but you 

definitely won’t miss out on stable returns.

2 Keep an eye on fees and taxes

Brokers charge fees on every trade  

made. The average is between 2 - 5% in 

fees for every sell or buy transaction.  

The commissions between brokers vary, so ensue 

you evaluate them before making your decision.  

Also, tax on capital gains can reduce your 

overall returns. Before investing evaluate  

the regulations within your jurisdiction to 

find out what taxes are due on your gains.

1 Move on from the stock markets once you win

The stock market is addictive. Many people like to  

compare it with gambling. Once you make some good 

money, you will always want to make more. However,  

once you have made a significant amount of money 

from the stock market, it’s a good idea to exit  

to avoid severe market downturns and the stress 

that comes with waiting out through bear markets. 

You see, you can always seek 

other investment opportunities,  

with stable returns despite them not being 

as lucrative in returns as the stock market.