The key to survive and thrive in these times of negative investor sentiment and increased volatility is sticking to sound principles or rules when adhering to you investment strategy.
Here we share eight rules that may help you to meet your financial goals and produce long-term value.
1. Maintain a Long-Term Outlook
The best question you can ask yourself is what you can invest in today that may maximise your wealth in 10 years’ time.
Investors should maintain a long-term outlook to help avoid bad decisions, such as getting scared out of the stock market and missing the recovery in stocks. Be aware that short-term profit does not create long-term value for anyone.
2. Set your goals
Having a clear goal is important when formulating any financial plan and gives you a context to make your financial decisions.
It gets difficult to decide which of the alternatives is best for you if you don’t have a clear idea of what you want to achieve.
3. Control your spending and invest your savings
Earn money, spend less than you earn, save, invest, and repeat the process. Although it sounds like a simple strategy, many people struggle to put into practice.
The best way to take control of your finances is to do a budget and know exactly where your money goes.
4. First, grow your asset base. Second, concentrate on income.
There is a certain order that you can follow when investing in asset classes to efficiently build wealth.
Firstly, build your net worth. You must invest in assets that provide most of their total returns in capital growth, not income.
Second, once you have a strong asset base, then look to generate passive income. This will help to avoid losing precious income to taxes, early in your investment journey.
5. Asset allocation diversification
Strategically allocate your assets. A well-diversified asset allocation that balances out your portfolio’s volatility is a highly efficient strategy.
It aims to maximise return by investing in different areas that would each react differently to the same event.
6. Share investing: the low-cost method
Avoid picking winning stocks and expensive actively managed funds. The easiest way to take advantage of this investing strategy is to buy index funds.
Because of their passive nature, index funds generally have lower expenses than actively-managed funds. The cost savings translate then into higher returns for the investor.
7. Property investing: the three attributes
Consider these three aspects when investing in property:
- over the half of the property must be land,
- the property must be in a location where the land supply and property type are scarce and lastly,
- the property must have a solid record of capital growth.
8. Protect your investment
Protect your investment strategy from expected and unexpected risks. To mitigate these risks, it is important that you consider and take into account all previous steps.
Sources:
[1] Your Money (2018), The 8 golden rules of wealth creation, https://www.yourmoney.com.au/wealth/investment/the-8-golden-rules-of-wealth-creation/
[2] The Street (2018), How to Protect Your Retirement Investments in These Volatile Markets, https://www.thestreet.com/retirement/how-to-protect-your-retirement-investments-in-these-volatile-markets-14790223
