What are the three principles of investment? 3 basic rules to avoid failure

[Summary]

The three principles of investment are "long term, diversification, and accumulation." By following these three points, you can aim for stable returns while minimizing risk. In this article, we will explain the meaning of each and how to put them into practice.

What are the three principles of investment?

Conclusion: Long term, diversification, and accumulation

These are the basic rules for achieving stable investment results.

Organize in one word

• Long-term: Make time your friend
• Diversification: Separating risks
• Accumulation: divide the timing

Principle 1: Long-term investment

Conclusion: Time smooths out the risks

One word explanation

Long-term investment = holding for a long period of time

why is it important

• Price fluctuations are large in the short term
• Growth is more likely to be reflected in the long term

Specific example

• Hold for 5 to 20 years
• Do not repeat buying and selling

Benefits

• The impact of price fluctuations is reduced
• Compound interest effect works

Disadvantages

• It's difficult to make a lot of money in a short period of time
• patience required

Principle 2: Diversified investment

Conclusion: Don't focus on one

One word explanation

Diversified investment = investing in multiple parts

method

• Assets: stocks, bonds, cash
• Region: Domestic/Overseas
• Industry: IT, finance, consumption, etc.

Benefits

• Reduce the risk of big losses
• Increased stability

Disadvantages

• Hard to hit the jackpot
• A little complicated to manage

Principle 3: Reserve investment

Bottom line: Distribute your timing

One word explanation

Reserved investment = Investing a fixed amount regularly

Why is it effective?

• Buy less when prices are high
• Buy more when it's cheap

Specific example

• Invest 10,000 yen every month in investment trusts

Benefits

• Avoid timing mistakes
• Not easily influenced by emotions

Disadvantages

• Efficiency decreases in a rising market
• Immediate effect is low

The combination of three principles is important

Conclusion: Use as a set, not alone

NG example

• Short term + intensive → high risk
• Long term + concentration → unstable

OK example

• Long term + diversification + accumulation → stable growth

common misconceptions

• Absolutely safe for long term → ❌
• There is no loss if you diversify → ❌
• Saving alone is enough → ❌

correct understanding

• risk is not zero
• It only works when you combine the three.

Summary

• Three principles of investment = long-term, diversification, and accumulation
• Basic strategy to aim for returns while minimizing risk
• Operate based on mechanics rather than emotions

action steps

• ① Divide funds based on long-term assumptions
• ② Design diversified investment
• ③ Automate savings