I get asked this question so many times – what strategy should I use when investing? Having a strategy does not necessarily guarantee you success in yielding high returns what it does do is guarantee success in mitigating risks. Creating and sticking to a strategy requires discipline and time especially since you are dealing with your own money. I will propose some tips that I have learned and used since I started investing three years ago.
Understand your investment
I cannot stress this enough. In the market there are noise traders who make investment decisions that have no fundamental basis. I.E.: They see a huge volume of stock being bought or sold then they follow the trend – blindly. They tend to overestimate/underestimate a stocks performance by overreacting to good or bad news. Due to the large number of uninformed investors out there they tend to move the market in the short term.
When you understand your investment you are able to discern the noise and clearly see the meaningful information that drives your investment. This will then help you make better decisions concerning you investment. I would suggest watching business news from time to time…GOOGLE your investment and stay up to date with your investment.
Have a financial plan
Investing in excess is not a good idea, in fact it is a terrible idea. Gradual inflow of funds into your investment can go a long way. Sit down and establish how much of your salary/savings you are willing to invest. This should only be done after taking to account your needs both present and future. Thereafter, establish the frequency at which you will invest. This is the steady cash inflow into your investment. I would suggest having an inflow of funds a at least once a month. You’ll be surprised how much you would have accumulate in one year.
Should I invest now?
WHY NOT?! The earlier you start investing the better. Think long term. This will see you mitigate risks over time and possibly realize better returns and investment success.
Think before you spend on luxury items
Spending on luxury items is a form of discretionary spending. This is any item that is a want and not a need. The moment you stop confusing the two then you are good to go. I personally get caught up in this mindset of the present where I forget that I have a future to attend to as well. Remember, the future won’t handle itself – you will. Ensuring you are able to turn your discretionary spending into investment spending takes discipline… it takes time. BUT YOU NEED TO DO IT.
Let the investment work for you
Remember the reason you are investing in the first place. What are you investing for? What do you expect to use the investment returns on? These are some of the questions you need to ask yourself before making an investment decision. I would suggest not tying your funds into one investment and also not tying your funds into one investment class. Spread your investment funds across more stock in different industries and also in different investment classes such as fixed income, real estate (in the form of REITS or D-REITS) etc. – DIVERSIFY .
If you need the money in the short term invest in liquid stock and short term bonds such as the 90 day T-bill. If you don’t need the money soon feel free to invest in longer term investments. All I am asking is – don’t tie down your cash. Have a cash pool that you can use during emergencies.
Evaluate and Re-evaluate you investments
If the investment is not working for you evaluate it. Adjust your investment and strategy to suit your needs at the time.
Well, those are some of my go-to tips when it comes to investing. These tips can also be used in other areas of your life as well. Having an open mind is also important when it comes to investing. There are pretty good investments out there that are just waiting to be discovered – go find them 🙂