The allure of investing, especially when the market is up, can often be offset by its complexity. You have to contend with endless choices, stressful news, and ever-changing market conditions. But there are a few key principles that every investor should follow when planning out their investment strategy. Here are a few that you should know.
This does not constitute advice and advice should be sought in all instances before acting on it.
Set goals
Setting investment goals will help you stay focused on achieving them no matter what life throws at you. Keep in mind that your goals may shift over time as your circumstances change.
Plan optimistically
It’s a bit of a gamble figuring out how long your retirement savings will need to last, especially since life expectancy increases every year. With that in mind, you should start investing as early as possible and stick to your plan, and as much as you can, plan for an extended life after working.
The power of compounding
Investing as early as possible will allow ample time for you to build your wealth. Not simply because you have more opportunity to invest, but because of compounding. Reinvesting the earned income from your investments will help your money grow exponentially.
The dangers of inflation
While cash does have importance as an asset class, it’s crucial to remember that inflation can negatively impact the real value of your cash, making it a less attractive long-term option. It is, however, great for short-term emergencies that need immediate access to cash. When you incorporate inflation into your thinking, you’ll see that other asset classes will maintain their value better than cash.
Your attitude toward risk
Risk and return usually go hand in hand. The goal for investors is always to gain the most reward with as little risk as possible, but often, that’s just not how it works. The bigger the risk, the bigger the reward and where you are in your investment journey will heavily influence how much risk you’re willing to take.
Diversification is the key
It’s one of the most commonly given pieces of advice when it comes to investing, but it’s true. Spreading your money across different asset classes (and even implementing diversification within asset classes), will help you minimise your risk and maximise your chances of success. Some areas will perform better than others, so the idea of diversification is to allow for balance when different areas don’t perform as well as they are expected to.
Stay the course
Volatility in the stock market is normal. Seasoned investors know not to let the ups and downs influence their decisions — apart from taking advantage of dips when you can. Keep your head even when things seem to be dire because the reality is that the market is always swinging from one extreme to the next, all you need to do is know how to navigate it.
Review your portfolio
While investing is sometimes a passive activity, it’s essential to come back to your portfolio on a regular basis to track your progress and ensure that your investments are still working for you. This will give you the chance to make changes to your portfolio if necessary and help you stay focused on your long-term goals.
Work with the experts
No matter your reasoning for investing, working with a professional will help you sort out your priorities and balance them against your current situation and broader economic activity to devise a strategy that works for you. Give the experts at Dental & Medical Financial Services a call to get started on your journey.