A beginner’s guide to smart investing

Making short-term investments = treating the markets like a casino. In the big picture, the stock market edges ever upward. So the longer your horizon (5-30 years), the better your odds.

Be patient. Your gains in the first few years won’t seem like much to get excited about, but they will get better over time. If you can stick with it for the long haul, the magic of compound interest will send your gains through the roof in later years.

Warren Buffett started investing at the age of 11. He is, without a doubt, one of the smartest investors around – but his real advantage is time. At 65, Buffett's net worth was around $3 billion. Today, it’s about $80 billion.

The majority of your returns will be down to a small number of good investments. Most individual stocks on an index fund, over the course of 30 years, turn out to be bad investments. But the few you get right can earn you a killing.

Learn to recognize the difference between a normal rate of loss and a high one. If four out of 10 stocks you chose go bust, that’s still a healthy rate. Warren Buffet’s returns are largely down to 10 main investments out of around 500 he’s made over the course of his life.

Everyone experiments; that’s why playing the long game is so important. Apple developed all sorts of products over the years, but it was the iPhone that moved the needle for them. It’s the same with Amazon: out of everything it’s done, Prime and AWS have been the game-changers.

Volatility is the price you have to pay for a good return of investment. There will always be bumps; your portfolio may even drop 20% temporarily, but it will likely recover if you hold firm.

Don’t let greed inspire unnecessary risks. Figures like Bernie Madoff and Rajat Gupta made fortunes legitimately before their desire for more money led them astray. Make sure you have a financial safety net for emergencies: the market gets rocked by the events nobody predicted.

Be careful whom you listen to. What works as sound financial advice for one person can prove catastrophic for someone else. Remember that not everyone is playing the same game.

Bottom line: Sensible investing won’t make you rich overnight, so be patient and accept the volatility. Try a sound strategy like dollar-cost averaging into index funds for up to 30/40 years. It may take longer to reap the rewards, but the odds will be stacked in your favor.