Successful investing is not an overnight achievement but a life-long journey requiring patience and discipline.
We know it’s easier said than done to just rely on patience, particularly when there have been many ups and downs throughout the share markets’ history. But over the long term, it can be a rewarding journey and a vehicle to build wealth. So, how can you navigate this journey effectively? We share some common principles around investing below.
Identify the appropriate strategy for you
Crafting an investment strategy depends on a few different factors. First, start by understanding what you’re trying to achieve; whether you’re looking to save for retirement, something in the near future like purchasing a property, or even a holiday. Once you determine the timeline you’re working with, that’ll give you an indication of the amount of risk you can afford to take.
Another influence at play is how much you can stomach the up-and-down movements of the share market – in other words, your tolerance for risk.
If you’re unsure about how to get started crafting an investment plan, you don’t necessarily have to determine this on your own. You can recruit the help of an adviser to craft the strategy that works for your situation.
Diversify to manage the risks
It’s no secret that investing involves risks. But it’s not all scary. The Global Financial Crisis ingrained fear into many, and while some people were caught out in this crisis, many also succeeded. We only hear about the disasters because negative headlines sell news.
What helped those who prevailed through this time was their ability to manage risk through diversification.
In simple terms, diversification means not putting all your eggs in one basket. Spread your risk across a variety of investments, which will help reduce the overall risk if one of these investments fails. We don’t have a crystal ball that looks into the future. While some investments have performed well in the past, this does not indicate their future performance.
Understand your emotions and energy
Managing money can be emotional. And it’s important to note how your emotional energy influences your ability to make decisions. Consider how you’ve responded to a previous predicament on a lousy night’s sleep.
When checking your investments, take stock of other factors that could influence your judgement. Fear and doubt can lead to impulsive decisions that may be detrimental to your long-term plan. This can also be true of the contrary, where the excitement of seeing a significant increase in an investment may tempt you to invest more. Limit the amount of time you spend checking on your investments and speak to an adviser if you need someone to help you keep a clear head when making important decisions.
Conduct your own research
As we mentioned earlier, historical returns do not always indicate how a share might perform in the future. Other factors come into play when determining a good investment, so it pays to do your research. Some key indications you might want to look out for:
- Investing in a structural growth industry.
Ask yourself whether this investment is part of a long-term trend that you believe in, e.g. artificial intelligence.
- The founder, CEO or fund manager has skin in the game.
Having someone back themselves in their work is a good indication that the people driving the success of a business or fund equally believe that it’s a good investment.
- Ensuring it aligns with your values.
Great performance may not be the only thing that’s important to you. Ensure you’re investing in line with your values. For example, if fighting climate change is important to you, fossil fuels might not meet your criteria.
While this list isn’t extensive, these are a few key things you can look for. If you’re working with AdviceFirst, you’ll know we only recommend managed funds that meet our strict criteria, including stability, performance, sustainability, size, and quality. We also supply all the documentation you need to research these funds yourself so that you can be sure they work for your situation.
Investing for the long term involves diligence, patience, and discipline. And, while it involves some level of risk, it’s not always scary. Because investing can also be the lever that propels you into the future of your dreams. With suitable advice and support from our expert advisers, you can be supported on your way to reaching your financial goals.
Book a financial review
Our advisers apply industry best practice to your specific situation with a level of expertise and consideration that is unique to AdviceFirst. Our thorough approach enables us to design a customised investment strategy and portfolio to help you achieve your goals.
If you would like to discuss strategies for your existing investment portfolio, book a financial review with an AdviceFirst Wealth Adviser. Contact the AdviceFirst team on 0800 438 238 or email hello@advicefirst.co.nz.
Disclaimer: This blog is for informational purposes only and does not constitute individual financial advice.
