Investment Planning: 5 tips for successful long-term investing
Investing can seem risky, daunting, and easy to put in the “too hard basket”.
So how do successful investors overcome the noise, learn how to minimise risk, and consistently build wealth over the long-term?
The truth is that there are some fundamental rules which successful investors follow, and some key mistakes that they avoid, which can have a great impact over the long-term.
Below are five steps we have built into our approach with clients to help achieve better investment outcomes over the long-term:
1. Get Your Foundations Right
Just like you build your house on solid foundations, building up your finances is no different. Before jumping in to invest, make sure you have the right structures in place. Work to a household budget and understand your investible surplus, make sure your income is protected and you are properly insured for the “what if scenarios”, and review any existing assets to make sure they fit into your plans and are structured in the most tax-effective manner.
2. Develop a Clear Plan
Make sure you have your big picture goals in mind when building your portfolio. It sounds simple, but many people miss this step and take an ad-hoc approach to investing.
If you have short-term goals, or are close to retirement, it can be beneficial to keep your investments liquid and to avoid highly volatile asset classes. With your longer-term goals, you can accept some volatility as a trade-off for growth, while if you invest too defensively for these goals you may risk having your returns eaten up by inflation.
Investing can be a means to an end for achieving lifestyle goals, so have these goals in mind when building your portfolio. Understand your timeframes, diversify where possible, and look at segmenting parts of your portfolio for specific goals.
3. Don't Follow the Noise
When markets are running hot or a new type of investment is in fashion, people often want to jump in and invest because they fear they’re missing out. Conversely, when there is nothing but negative stories in the media, people are often put off investing at a time that may offer discounted buying opportunities.
Take a step back, look at the fundamentals and intrinsic value of an investment, and there can be quality investment opportunities throughout market cycles for those who don’t get caught up with hype and sentiment (both positive and negative).
4. Start Early - "Time in the Market", not "Timing the Market"
“Most people overestimate what they can do in one year and underestimate what they can do in ten years.” – Bill Gates
Don’t try to make your millions overnight. We’ve all heard of the get rich quick schemes, spruikers promising huge returns in a short space of time, with little to no risk. As the saying goes, if it sounds too good to be true, it probably is.
But proactive planning can certainly reap significant benefits in the long-term. Successful investors let compounding returns work in their favour. They think in long-term horizons, accumulate income producing assets over a period of time, and reinvest their earnings.
5. Be Adaptable - Life is Not Linear
So you now have a clear plan in place, you can now sit back, relax, and coast towards a comfortable retirement…. Except, as we all know, life is not linear. Unexpected changes will happen, life will always throw up unforeseen challenges and opportunities.
The first step is to regularly review your strategy and be open to changing direction if it is required or a new opportunity arises. Stay adaptable, always try to hold some cash reserves, keep liquidity in your portfolio, and adjust to change in a positive way.
Want to learn more?
If you are interested in learning more, visit us on: www.horizonwa.com.au.
To organise an obligation free conversation, reach out to info@horizonwa.com.au or book online: Book a Meeting.
The above contains general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information or strategies mentioned, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.