Wouldn’t it be great to have great Investing Success without any risk, I certainly think so, although the simple reality with investing is that there is a risk. However with a plan, knowledge and in time experience this risk can be minimised and the overall outcome is a very effective means of achieving your financial goals. The type of plan to adopt is really dependent on what suits you best, you may like to have an aggressive strategy with possible greater returns and more risk, or maybe a less aggressive strategy with lesser returns and lower risk, or even anywhere in between. Also you may like to have investments that mostly look after themselves and only require attention every now and again, or you may prefer to be more involved in your investments and know exactly what your money is doing all the time. There is no real perfect plan or any real secret to investing however these simple tips may assist in your investing success.
Tip 1: Set Motivating Goals
Goal setting is a very effective when investing, it provides the means to set a target for yourself, gives you direction and is helpful in motivating you to do the things to achieve your desired result. Setting motivating goals is completely dependent on personal preference, you may be motivated by the goal of returning enough money from your investments to buy a luxury yacht or you may be motivated by the goal of having 20 investment properties in your portfolio. There is no right or wrong goal as long as it gives you direction, gives you something to aim for and motivates you, then you’re on the right track.
Tip 2: Do your Homework
With the potential risk involved with any type of investment, doing your homework is an essential process. You wouldn’t go to a car yard with no particular car in mind and purchase the first one you see, you would do your homework first wouldn’t you. For example you would have some criteria set out and you may be looking for a car that is reliable, performs well, appeals to you, basically a car that just ticks all the right boxes. The same goes with investing, you would most likely not get the best result by investing in the first shares you come across or the first property that you inspect. For the stock market, doing your homework may involve searching news articles or press releases for a particular company you have an interest in and checking the history of the stock price. While for a property you may do a check on the surrounding suburb, find out the previous sale price, get building and pests inspections done on it. There are countless things you can do to ensure that you are making a wise investment decision, make sure you do your homework and you’ll do better than most.
Tip 3: Invest Regularly
Investing is not a get rich quick scheme to be truly successful at investing you need to do it regularly. The best chance to acquire measurable wealth lies in developing the habit of adding to your investments regularly and putting the money where it can do the most for you. You can put $10,000 into a share account returning an average of 20% per year, and if you take all of that return out every year in ten years time you may have earned $2,000 every year but you’ll still have only $10,000 in that account minus account keeping fees and the loss in inflation, tax etc., giving a total net worth of $30,000. However if you reinvested that $2,000 every year, in ten years time you’ll have a total net worth of about $62,000. That’s $62,000 in your share account now with the potential to earn you $12,400/year at 20%, as opposed to the $2,000 you would still be earning with the other scenario. Now this may not included potential losses in either case, but the idea is to highlight to you the benefit of regularly fuelling your investments?
Tip 4: Keep an Investment Diary
Keeping a record of your investments can be a great learning tool to determine the strategies which work best for you and can be an insight into why an investment worked so well or why it didn’t work so well. Having the right information which you can always look back on will lead to wiser investments in the future, therefore minimising risks, increasing the potential returns and thus greater investing success. Information that may be helpful to keep a record of includes:
The research done to find the investment
The investments you turned away and why you turned them away
Why you chose the particular investment
The plan you had in place prior to making the investment
In the case of an investment property you may take note of the agents used, renovations done and renovation contractors used.
In the case of a share market investment you may take note of the stop loss margin, profit margin and stop profit loss margin used and whether they can be adjusted to reduce risk and increase potential profit.
Tip 5: Diversify
Diversity is in old old wooden ship, joking (Anchorman reference for those that haven’t seen it), diversifying your investments in an effective means of managing your risk and increasing returns. The type of diversification strategy should be dependent upon your age, income and investment goals. For example, if you were young and just beginning you investments you have the opportunity to have more increased risk and may benefit from putting your assets into stocks that have long-term potential, and stocks with greater risk and potential returns. While if you were approaching retirement you may benefit more from shifting your assets into income producing investments such as bonds or utility stocks. Your diversification strategy could involve setting up a portfolio consisting of equal parts of different investment vehicles such as, bonds, local stocks, foreign stocks, and real estate. Once a year, you could then adjust each vehicle to maintain the same asset distribution by taking the gains in your winning investments and spreading them amongst your losing investments.
Tip 6: Have a Plan and Stick to it
The journey to investing success can have many distractions and obstacles that can lead you off course, the way in which to overcome these and maintain the right path is to have a plan and stick to it. Whether it starts off being extremely basic with just basic goals, milestones, strategies etc. the idea is to know where you’re going and work out what is required to get there, once you get more involved you will be adjust and fine tune your plan to be more effective. For example your goal may be to own 5 investment properties in 5 years time, you may work out that in order to achieve your goal you need to work an extra 5 hrs of overtime a week, cut back on some expenses and get training or obtain the knowledge to learn how to go about it effectively, this would be your plan. Your milestones may be to ensure you have at least one investment property every year. Now if it so happens that you miss one of your milestones it’s not the end. You just simply need to go through your records work out why you didn’t achieve your milestone and re-adjust your plan accordingly. If you do achieve your milestone this doesn’t mean there is no room for improvement, although you should reward yourself, let yourself know that you’re doing well and rewards are a great motivator as well.
Tip 7: Manage your Risk
You can effectively manage your risk by following the above mentioned tips such as doing your homework, having a plan and sticking to it, and diversifying. Additionally risk can be managed by first identifying what your risk are, the most common risk with investing is obviously losing your money. What is it however that causes you to loose your money? Just for example with stock market investing there is a risk of a stock doing the opposite of what you indeed it to do or you selling to early and losing potential profit, with property investing the risk are that the value of the property won’t increase as intended or you may not be able to rent it out. Once you’ve identified what are the potential factors that can cause you to lose money in a given investment you can begin to work out a plan to manage the identified risk. Strategies to manage your risk could be to avoid the risk altogether and look for something else, try and reduce the risk or simply accept the risk. Whatever your plan may be just ensure that the risk is monitored and constantly look for ways in which to minimise the risk.
In summary investing success may be obtained by using a combination of the above mentioned tips, however don’t limit yourself to these, it is a constant learning process, no investor out there knows everything there is to know about investing. Find what best works for you then just get out their have a go and achieve your investing success.