Are you interested in how to become a better investor? It's an admirable goal, but it can seem overwhelming at first. After all, how do you maximize your gains while minimizing your losses? The good news is that here are five tips to help you on your path to becoming a better investor.
The first tip is to have a clear investment strategy. Before creating an investment strategy, it’s important to get really clear on what your goals are for the money that you're investing. Even before I start talking to my clients about individual investments, I ask some important questions. What are your financial goals and in what timeframe do you want to achieve these goals? What’s your risk tolerance? What are your liquidity needs? Liquidity refers to how quickly you can convert an investment into cash.
We work with a lot of people who are recently divorced, and one of the things I’ve noticed is that they are often hesitant to shift their investment strategy to reflect their new financial situation. Big life changes can have a significant impact on your strategy so it’s important to take the time to review and evaluate your strategy and make sure it’s still in alignment with your goals. The strategy you had when you were married may not be working for you now so it’s important to make timely adjustments if needed.
There’s a saying about taking the long view - that it’s “time in” the market, not “timing” the market. When you take the long view, you're able to take advantage of compounded growth. Compounded growth is when earnings are reinvested and then that reinvestment starts to earn money. So as a result, the longer your money is invested the greater your ability to take advantage of the benefit of compounding.
That does mean that in a volatile market, you may feel like you have to endure some short-term pain in order to have long-term benefits, but that's again where your investment strategy is so important. The reality is that the financial markets can be very volatile, and there are news headlines and a lot of other variables that impact the day-to-day movement of the markets.
For some people, that constant movement can feel really uncomfortable, but it's important to stay calm during those periods of economic turmoil and stay focused on your long-term investing goals. This will help you become a more confident investor, and you may even start to see those tumultuous times as opportunities instead of feeling fearful. Having a clear investment strategy in place will help you feel confident, knowing that even in times of market volatility, you have a plan in place and know how to deal with it.
The third tip is to diversify your holdings. A diversified investment portfolio can help you manage risk during periods of market uncertainty, and it also has the potential to improve your outcomes over the long-term. Diversification is the opposite of “putting all your eggs in one basket.” Investments can be diversified in a variety of ways such as asset class, industry, company size, and geography. Each of these elements is important.
There can be times when economic conditions upset the balance in your portfolio or maybe you’ve gone through a major life change and need to reallocate your investments. It’s essential that you’re periodically reviewing your portfolio and rebalance it when needed to be in alignment with your current investment goals and your tolerance for risk.
Having an investment strategy with a clear allocation plan that’s in alignment with your goals is so important, but it’s equally important to keep that alignment. Regular review and maintenance can go a long way in helping you reach your goals.
The fifth and last tip is to be consistent. Investing consistently is really important but that can look different depending on the nature of your financial situation.. For example, some may invest weekly, others monthly and others quarterly. Your specific financial situation and goals should determine what is appropriate for you. Regardless of the frequency with which you invest, being consistent will help you reach your goals!
Remember that while nobody can guarantee an outcome when investing, following these basic principles can help you stay on the path to achieving your financial goals. If you need help implementing these investment tips or would like to discuss your investment strategy with a professional, don't hesitate to reach out to us. Our team of experts can guide you through the investment process and help you achieve your financial goals.
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