You have a fitness trainer because you need motivation and fast rules to maximize the use of the gym or get in shape with strength training very fast or be fit based on your lifestyle and body.
In investing, you have many options and you have to start with a strategy, goal and a coach.
Based on your situation, goals, age and capacity to invest, you will need to start with an investing strategy and a tactician coach. How much risk can you afford? How can you lower the many kinds of risks?
- 1. Have an investment goal and coach.
- Specific: goals should be written down
- Measurable: have a way to quantify progress
- Ask: seek advice when you have questions
- Responsible: adjust your portfolio as needed
- Transparent: share your goals with family and others
- Prepare for jumpy markets. In recent years, markets have been quite calm, with few dramatic ups and downs. This isn’t normal. The successful investor knows that when the market dips, it’s not time to flee but to buy “on sale”. People tend to miss out on investment gains because they sell when the market goes through a rough patch. Get familiar with normal market bumps (otherwise known as volatility) and stick to your strategy.
- Diversify. Really. You may know the term “diversify” as an investment directive to not put all of your eggs in one basket, but what does that mean, exactly? I had a client during my financial advisor days who spread his assets among five different banks and called himself diversified. Diversification means balancing risks in your portfolio by combining investments that differ from one another. It’s a way of finding opportunity for growth while minimizing the overall bumpiness from year to year.
- Rethink the safety of cash. I’ve discussed this before on The Blog and I can’t stress it enough. Cash is not an investment strategy. People know this, but they stick with cash because they think it’s safer. What they’re ignoring is the risk to their future spending power. Not only does cash provide virtually no return, it can lose you money thanks to taxes and inflation. Sure, inflation may be low today, but even a nominal amount of inflation can really pack a punch over time. If you’re holding too much cash, you should consider putting it to work.
- Don’t set it and forget it. There’s an old rule of thumb that you should have the same percentage of bonds as your current age. So if you’re 40, the rule is that 40% of your portfolio should be bonds and the rest should be equities. But this shortcut, like many others, is oversimplified. It doesn’t take into account changes in the market environment, not to mention your life and circumstances over time. Successful investors fully and optimistically engage in their financial lives. That doesn’t mean being a day trader, but rather owning your financial future. Make the most of it.