Principles of successful investing
IAnele Dube t’s not shocking that the world of investing may seem so convoluted. Today in investing, investors face regularly changing markets hence you will need to be well informed before investing.
The principles of successful investing are quite basic and will help avoid pitfalls that can result in unnecessary losses or missed opportunities.
To that end, the following principles can help you to successfully invest and attain all your financial goals.
1. Have a plan
Markets fluctuate a lot that even investors with vast experience may become too focused on the short-term market shifts.
This will lead to rush decisions trying to better set your investments for returns hence you need a plan.
With a well-structured plan you can confidently stay committed. The market fluctuations day to day but may have no bearing in the long run, with a plan you know this hence no need to make hasty decisions.
A good plan sets you up for success and gives you a clear roadmap, one that reflects your goals, your personal situation, and your comfort level with taking risks when investing.
Having a plan is the bedrock on which the other four principles hinge on because it prepares you for a wide range of outcomes and it helps you stay on track to achieve your goals.
2. Diversify your investment portfolio
When it comes to investing the simplest way to manage risk is to not put your eggs or dollars in one basket instead you spread them across different asset classes, geographical markets, and industries.
Financial markets do not behave the same way at the same time. At different points on the market cycle different investments will either lead or lag and may respond differently to changes in environmental factors.
This is why you diversify to be in a better place to maximise opportunities across different investments.
Also having a diverse investment portfolio will create a smoother investment experience as the investments with an increase in value will balance out those which are less performing.
3. Invest early
Time is an investor’s greatest asset and is one of the best ways to build wealth. Investing early is deemed more effective than waiting until you have a substantial amount saved to invest.
This is due to the power of compounding. Compounding is when you reinvest your investment earnings to generate even more earnings.
4. Invest regularly
The small amounts that you have if you invest it on a regular basis, can help you keep on track to accomplish your financial goals. Also investing money on an ongoing basis will help smooth out returns in the long run and minimize portfolio volatility. Portfolio volatility is a measure of how much the portfolio deviates from its mean return.
5. Invest enough
For this principle, it is predicated on what your goals for investing are, be it retirement, education, a car, a house or even bride price. After you determine your goal ask yourself the following questions
◆ How much money will you need for your investment goal?
◆ How much have you already saved?
◆ How long do you have to save the rest?
From the answers you get you will know how much is enough.