Investing can often be distilled into a few fundamental principles that can guide you toward success. However, achieving success involves not just knowing what to do, but also what to avoid. Our emotions can complicate matters, leading us to make decisions like selling low and buying high, despite the well-known strategy of “buy low and sell high.”

To navigate the challenges of investing, it’s crucial to establish a set of “golden rules” to follow during difficult times. While it’s easy to profit when the market is rising, true success comes from having a long-term strategy that holds up during market fluctuations.

Here are 10 golden rules of investing that can help you become a more successful — and potentially wealthier — investor.

Rule No. 1 – Never lose money

Let’s start with some timeless wisdom from the legendary investor Warren Buffett: “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.” Buffett’s advice highlights the critical importance of preserving your capital. The more money you have in your portfolio, the more you can potentially earn. Therefore, a loss directly impacts your future earning potential.

While avoiding loss may sound straightforward, the essence of Buffett’s rule is to carefully consider the risks associated with an investment, not just its potential rewards. If the potential returns don’t justify the risks, it may not be a worthwhile investment. Buffett advises focusing on the downside first.

Stocks, despite their volatility, are generally backed by the earning power of global businesses. Over time, as earnings increase, stock values tend to rise. In contrast, cryptocurrencies often lack a tangible basis, such as earnings or hard assets, which makes them highly speculative. As a result, cryptocurrencies could potentially become worthless, a risk Buffett prefers to avoid.

Rule No. 2 – Think like an owner

“Think like an owner,” advises Chris Graff, co-chief investment officer at RMB Capital. “Remember that you’re investing in businesses, not just stocks.”

Many investors view stocks as a form of gambling, but behind each stock is a real business. When you invest in stocks, you’re buying a fractional ownership of a company. Thus, as the company’s performance improves or declines, its stock price is likely to reflect these changes.

Christopher Mizer, CEO of Vivaris Capital, emphasizes the importance of understanding your motivation. “Are you investing or gambling? Investing involves analyzing fundamentals, assessing valuation, and forecasting the business’s future performance.”

Graff adds, “Ensure the management team is competent and aligned with shareholder interests, and that the company is financially strong and competitive.”

Rule No. 3 – Stick to your process

“Successful investors develop a consistent strategy that endures across various market cycles,” advises Sam Hendel, portfolio manager at Kepos Capital. “Stick to your proven methods, even when faced with short-term challenges that might make you question your approach.”

A tried-and-true strategy is the long-term buy-and-hold approach. For instance, regularly investing in stock funds through a 401(k) and holding them for decades can be highly effective. While market volatility may tempt you to deviate from your plan due to temporary losses, maintaining your course is crucial for long-term success.

Rule No. 4 – Buy when everyone is fearful

When the market dips, many investors either sell their holdings or ignore it altogether. However, this is precisely when opportunities for bargains arise. It’s often said that the stock market is unique in that prices drop, and yet people are hesitant to buy. As Warren Buffett famously advises, “Be fearful when others are greedy, and greedy when others are fearful.”

For those investing through a 401(k), the system helps mitigate emotional reactions. Once you set up your account, contributions continue automatically, allowing you to buy stocks even when prices are low. This disciplined approach helps you take advantage of lower prices and benefit from long-term gains.

Investors who kept buying during the 2020 market downturn saw significant returns in 2021, and similar patterns are likely to repeat in future market dips.

Rule No. 5 – Keep your investing discipline

Consistent saving is crucial for investors, regardless of market conditions. Even if you can only set aside a small amount, maintaining regular contributions helps you develop a habit of living below your means while steadily building your portfolio.

A 401(k) is particularly well-suited for this disciplined approach. It automatically deducts funds from your paycheck, removing the need for manual decisions about contributions. To maximize the benefits of your 401(k), it’s also essential to choose your investments wisely. Here’s how to select the right options for your 401(k).

Rule No. 6 – Stay diversified

Maintaining diversification in your portfolio is crucial for managing risk. Relying on just one or two stocks, regardless of their past performance, exposes you to unnecessary risk. Experts recommend spreading your investments across a range of assets to create a diversified portfolio.

“Diversification is the one strategy I’d prioritize when investing,” says Mindy Yu, former director of investing at Betterment. “It helps you navigate the stock market’s fluctuations more effectively.”

The good news is that achieving diversification can be straightforward. Investing in a Standard & Poor’s 500 Index fund, which includes shares from hundreds of leading American companies, offers instant diversification. For even broader diversification, consider adding a bond fund or a real estate fund, which may respond differently to various economic conditions.

Rule No. 7 – Avoid timing the market

Experts frequently advise against trying to time the market—attempting to buy or sell at the perfect moment, as often depicted in media. Instead, they emphasize that “Time in the market is more important than timing the market.” The key is to stay invested to reap the benefits of long-term growth rather than trying to jump in and out based on market fluctuations.

Veronica Willis, an investment strategy analyst at Wells Fargo Investment Institute, reinforces this point: “The best and worst days often occur close together and during periods of high market volatility, such as bear markets or economic recessions. Achieving the precision needed to be in the market on the best days and out on the worst is extremely challenging.”

Experts generally recommend a regular investment strategy to benefit from dollar-cost averaging.

Rule No. 8 – Understand everything you invest in

“Only invest in products you understand, and make sure the risks are clearly disclosed to you beforehand,” advises Chris Rawley, founder and CEO of Harvest Returns, a fintech marketplace for agricultural investments.

Regardless of what you’re investing in, it’s crucial to understand how it operates. If you’re purchasing a stock, know the reasons behind your decision and when the stock is expected to be profitable. For a fund, review its performance history and costs. If you’re considering an annuity, ensure you grasp how it functions and what rights you have.

Rule No. 9 – Review your investing plan regularly

While establishing a solid investing plan is a great start, it’s important to regularly review it to ensure it continues to meet your needs. A good time to do this might be during your routine account checks for tax purposes.

“Remember, your initial financial plan isn’t set in stone,” says Kevin Driscoll, vice president of investment services at Navy Federal Financial Group. “You should review your plan at least once a year and particularly when you hit major life milestones like starting a family, relocating, or changing jobs.”

Rule No. 10 – Stay in the game, have an emergency fund

Having an emergency fund is crucial, not just for weathering financial storms but also for maintaining your long-term investment strategy.

“Keep about 5 percent of your assets in cash,” advises Craig Kirsner, president of retirement planning services at Kirsner Wealth Management in Pompano Beach, Florida. “It’s wise to have at least six months’ worth of expenses saved.”

If you need to sell investments during a downturn, it’s often when their value is low. An emergency fund helps you avoid selling investments at a loss and lets you stay invested for the long haul. For funds you might need in the short term (less than three years), keep them in cash, ideally in a high-yield savings account or a certificate of deposit (CD). Be sure to compare options to find the best rates.

In Conclusion

Successful investing involves not only making the right choices but also steering clear of common pitfalls. Equally important is managing your emotions to stay committed to smart strategies, even when they seem risky or uncertain.