Top 10 Rules for Successful Investing

Many people have a lot riding on their investments. It arguably provides the best chance to achieve long-term financial goals, whether generating enough money to retire, giving children or grandchildren a big helping hand as they begin their adult life, or something else entirely.

With so much money at stake, it’s crucial to have a plan. Selecting the right investments is important, but there’s more to it than that. You should also craft a set of guiding principles and learn about how financial markets work. Doing so can reduce the risk of making mistakes in the heat of the moment and maximize your returns.

This article looks at 10 key rules for making the most of your investments.

Rule 1: Understand Market Cycles

Asset prices generally rise, fall, then rise again. And it’s not all random. These phases of expansion and contraction form part of a cycle that regularly repeats itself.

In good times, companies invest, consumers spend, banks lend money at reasonable rates, and most stocks rise in value. The good times don't last forever (indeed, a sign that it's coming to an end is seeing some claiming they never will.) Eventually, costs rise too much and investments fetch more than their historical norms. At this point, a "correction" begins as the economy weakens and investors retreat, paving the way for the cycle to repeat again.

The key takeaway from this is not to panic when prices start dropping. Over time, the stock market should continue its upward trajectory—historically, it always has, but that's cold comfort in the moment.

Rule 2: Avoid Emotional Investing

One of the main reasons investors are advised to establish guidelines before investing is to reduce the chance of emotions getting the better of them. When investors log in to their accounts during bouts of volatility, they tend to be impulsive, buying more of the winners and dumping the losers. Often that turns out to be a mistake.

“The worst investment decisions are those driven by fear or greed,” said Alex Campbell, head of communications at U.K.-based financial technology company FreeTrade. “Take some time to consider the drop in light of your investment strategy and reflect on the move that you feel is right based on the available information.”

Rule 3: Sometimes It Pays To Be a Contrarian

“Buying low and selling high" means being a contrarian—buying or selling when others are not. It requires a lot more research on your part. It’s not just a case of buying everything out of favor. The market is generally right and most stocks are cheap for a reason.

To be successful, you’ll need to scrutinize the data, be a critical thinker, and not get distracted by what others say. A good starting point is learning to recognize overcorrections. For example, investors can sometimes excessively punish the entire market when the economy is stuttering or oversell specific stocks because of adverse temporary factors.

Rule 4: Know When To Exit

Normally, a long-term buy-and-hold strategy is considered the best way to go. However, sometimes it’s necessary to walk away earlier than planned. Byeajee said too many investors approach some investments like the lottery.

"This mindset can be disastrous, leading to behaviors like chasing trends, panic selling, or overleveraging—all of which will likely wipe out gains and erode confidence," he said. "Sustainable investing is about playing the long game, respecting the process, and allowing compounding to work its magic over time." 

To avoid making mistakes, it’s sensible to draw up an exit strategy at the onset before the investments are made. Common methods include setting price targets, loss limits, and time frames for your investment. You should also consider triggering events that could make you lose confidence and that your risk tolerance could change over time.

Rule 5: Diversify Your Portfolio

Investors are regularly advised to spread their money across numerous investments. "For most people in most situations, a long-term, buy-and-hold, diversified, low-cost investment approach is likely more suitable than active trading," said David Tenerelli, a certified financial planner at Values Added Financial Planning in Plano, Texas. "This is because it helps the investor ignore the 'noise' and instead focus on a disciplined approach."

The logic behind diversification is that different assets will react differently to the same events. In theory, that means if one investment does badly, its impact will be limited as the other assets in the portfolio should perform better.

Rule 6: Follow Broader Market Indicators

Stock market indexes track the performance of a selection of publicly traded companies and so function as a barometer of segments of the stock market. There are a variety of indexes to keep tabs on. Some focus on specific sectors or the country’s biggest companies by market cap. For a representation of the entire U.S. stock market, a good place to look is the Wilshire 5000 or Russell 3000.

Rule 7: Recognize Bear Market Patterns

Bear markets—when there's a steep drop in asset prices—are less scary when you understand how they work.

These periods of prolonged price declines are usually broken down into four distinct phases, which SteelPeak Wealth, a Los Angeles-based wealth management firm, describes as follows:

1. Recognition. Prices start fluctuating yet most investors shrug it off as normal ups and downs. Eventually, they begin to realize a bear market is impending and stop buying on the dips.
2. Panic. Prices plummet, the media reports doom and gloom, and investors panic sell.
3. Stabilization. Stocks halt their decline but the outlook remains grim and any rally triggered by optimists is usually knocked back.
4. Anticipation. The recovery begins.
   

Rule 8: Be Skeptical of Forecasts

The internet is littered with predictions from so-called gurus. You’re best off ignoring them. A study from the CXO Advisory Group found that their accuracy was, on average, just under 47%. That’s worse than flipping a coin.

“Market forecasts should be ignored, regardless of whom they come from—professional economists or market gurus,” wrote Larry Swedroe, a consultant and outsourced chief investment officer, in response to that report. “Instead, investors are best served by having a well-thought-out plan, including rebalancing targets, and sticking to that plan.”

Rule 9: Prepare for Market Volatility

Market volatility is scary. Seeing your holdings are shedding value could make you want to dash for the exit and ignore your well-thought-out convictions. That’s the last thing you should do. Remember, markets go through ups and downs but generally rise in value over the long run.

Rule 10: Enjoy Bull Markets, Prepare for Bear Markets

Markets and prices move up and down. When they are rising, it can be tempting to be overconfident and throw more money at the winners. And when they plummet, you might want to do the opposite and dump everything, especially the laggards. Knowledge of how markets work will hopefully prevent you from panicking or being greedy.

If anything, you want to buy when assets you are convinced about are out of favor and sell when everyone is raving about them. Or better yet, do nothing and stick to your strategy. It’s time in the market rather than timing the market that often generates the best returns.

The Bottom Line

There are no guarantees of success in investing. However, if you understand market cycles and how indexes and bear markets work, avoid impulse buying or selling, adopt a contrarian mindset, draft an exit strategy, and maintain a diversified portfolio, you’ll have a much better chance of coming out on top.

"To succeed, traders and investors must trust the process even when the outcomes are temporarily unfavorable," Byeajee said. "This mindset shift isn't just important; it's foundational. It’s the difference between reacting emotionally and acting strategically—not once or twice, but consistently."