"If it looks too good to be true, then it probably is."

Most investors use this rule as the basic guideline for all their investment decisions. This rule is really a pearl of wisdom where it comes to spending/investing money. But if you are a smart investor, you need to know a few more rules to make the best investment decisions.

Things All Investors Must Know

Profit/Risk: One of the ground rules of investing is that any investment vehicle that promises a high return, much higher than the prevailing interest rates, is bound to have risk associated with it. So if your investment advisor is only telling you about the profits you will make, make sure to ask about the risks as well.

Everyone Is Buying It: This could be the worst basis for your investment decisions. Do not invest in any vehicle unless you understand it completely, and believe in it. If you don't understand or are unsure about the benefits, don't invest just because everyone else is doing it.

Rich=Honest: It is human tendency that we tend to trust people who have a higher social/financial status, more easily, as compared to poor people. But please be warned. Don't trust a financial services advisor or an agent just because he/she happens to be rich or socially respected. Maybe he got rich only because he isn't honest!

Risk Profiling: Before you make your investments, you should be clear about your risk profile. The risk profile of a person is arrived at by taking into consideration all the relevant factors like salary, age, lifestyle, responsibilities, size of family etc. Don't invest outside your risk profile.

Push Push Push: Whenever your financial advisor pushes you towards a particular product or tries his best to steer you away from a product, be very very wary. As soon as your advisor becomes aggressive in his advice, you should understand that it is not your welfare alone that is motivating him. Make sure you dig out more information than what he gives you, and make an informed decision YOURSELF.

Diversify: To minimise the risk, diversify your investments. Don't put all your eggs in one basket. This may mean that your potential profits may be diminished in one vehicle. But it also lowers your potential risk in another.

FREE Advice: No matter what he tells you, your advisor will never give you free advice. Mutual Fund advisors are known to switch funds and do various other things with the investor's money, only to serve their personal purpose of earning commission. The commission goes out of YOUR pocket. So whenever the advisor does not tell you his fee, find out where he is getting paid from. Most likely, you are paying him for every word he speaks, without even knowing it.

The most sensible "money" advice is that you should have all information that you require before making a decision, and you should not let anyone else make your decisions for you!