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Seven Keys to Successful Investing

 

It requires discipline to stay invested through volatile times and capture the long–term performance of the market.  Investor behaviour often deviates from logic and reason, and investors display many biases that influence their investment decision-making.  There are seven strategies that can help cut through the noise and emotional biases, and help you to invest more successfully over the long-term.

  1. Start Investing as early as possible

It’s never too early to start investing.  Investing early develops positive habits and teaches important lessons about spending and saving.  Those who invested early on are less likely to be careless with money in the long run.  In addition, the earlier you start the greater the power of compounding.

  1. Invest in what you understand

There have been lots of investments over the decades that have been sold on the promise of high returns and low risk.  If an investment looks too good to be true then it probably is.  Stick to investments that show you sustainable cash flows and don’t rely on complex gearing or financial engineering to succeed.

  1. Avoid emotional biases

Access to masses of information is affecting our investment choices through emotional responses.  Being aware of biases and taking a disciplined approach can help.  The key is to build a long term plan that suits your age and risk tolerance, then stick to it.

  1. Volatility is normal

It’s always disconcerting watching the value of your assets rise and fall.  You can’t avoid volatility in financial markets – it’s simply a fact of life. However, history has shown that returns tend to be relatively smooth over long periods

  1. Diversify your investments

Diversification is one of the most important concepts in financial markets.  Its purpose is to protect investors when markets are volatile.  The theory behind a diversified portfolio is that asset prices do not move perfectly together, so as one asset class rises, another falls, allowing the portfolio to ride out market cycles.

  1. Turn down the noise

Once you have worked out a strategy that is right for you it’s important to turn down the information flow on the investments.  Fretting over individual investments is a distraction, because it’s your asset allocation that will largely determine the return you receive.

  1. Invest for the long term

Time in the market rather than timing can help to manage risk and improve the outcome of the portfolio over the long-term.  It takes courage to leave your investments where they are when there is a major event that causes a drop in value, but over time markets recover.

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