A smart investor is a w/healthier one
It may sound common sense, but smart investing is the best investment. Especially given that with numerous financial products available, you need to pick the most suitable one. Smart investing takes the basic investing principles alongside making investment choices specific to your needs to help you achieve your future financial goals. By becoming a smart investor, you can plan your time and money appropriately to create an additional source of income, gain long-term financial security, and have sufficient post-retirement wealth.
How to invest smartly:
1. Start early
Invest as soon as possible: the earlier you invest, the richer you get.
First, you learn a pattern of financial independence and discipline by investing early in life. In addition, you start to understand the difference between savings and investments. Even a small amount invested can add more money to your future wallet.
Another reason to start early includes having more recovery time. So if you incur a loss, you have more time to make up for the investment loss. You also end up saving more and being more responsible since you cut unnecessary expenses so that you have more for investments.
Last but certainly not least, don’t underestimate the power of compound interest. In order words, when you reinvest the proceeds of previous investments. The sooner you start to invest; the more beneficial compound interest will earn you money across your life span. Consider it as ordering the supersize menu for your future wealth.
Albert Einstein once said
“Compound interest is the eighth wonder of the world. (S)he who understands it, earns it; (s)he who doesn't, pays it”.
2. Set a clear and realistic goal
Start the journey having its end in mind
Achieving anything meaningful in life requires a goal. When you know what you want to achieve, you can better define how you want to achieve it. Be sure to set a clear and realistic goal for yourself. The key here is that it’s practical.
Ideally, it should be a long-term goal that can be broken down into bite-size, achievable short-term goals, so you know you’re making progress. But, as a famous saying goes, “there’s no favorable wind for the sailor who doesn’t know where to go.” So set your on a path to success by defining the ultimate destination.
3. Diversify to survive
Take a step back and think about biology class. Remember when you learned about the importance of species diversification for survival? That’s because species adapted more to their environment than those that remained restricted in an ecological niche. That’s because diversity creates a stable environment meant to sustain life.
It’s the same with finance. It’s not about the strongest or most intelligent who survives. Instead, the smart investor can adapt best and be flexible. We’ve mentioned that the financial market isn’t stable and can quickly fluctuate daily. Even drastically. To create a stable environment, you need to diversify your portfolio. An investment in a solid asset may seem safe, but there’s no guarantee that it is. That's why diversification is a critical concept.
Diversifying your investments into different asset classes helps manage risk and avoid significant financial losses.
4. Different asset classes perform differently
Simply put, an asset class is a grouping of investments with similar traits. This includes equities such as stocks, fixed income in the form of bonds, real estate, currencies, and more. Even cryptocurrency is considered an asset class.
All these types of investments are great to consider for diversification purposes. However, they each carry their own risk and return investment and, thus, behave differently in the financial world. In addition, some asset classes are more stable and balance the performance of your portfolio when fluctuations are most significant; others grow more over time.
Learn about the different options at your disposal to start diversifying your portfolio.
5. Protect yourself from high costs
Before investing, understand and know the costs associated with investing. This includes taxes, transaction costs, etc.
A wise investor makes sure that its portfolio is sustainable. One crucial thing to note is that all investments have costs.
So do your research. Maybe a financial advisor or product offers extremely low expense ratios but makes you pay front-and back-end loads. And in general, funds with lower costs have outperformed more expensive ones. So do your math, do your due diligence and ensure that performance costs won’t end up costing you or losing all the growth you ended up making in the future.
6. Rebalance your portfolio
No matter how good your initial plan may be, you might need to adjust your investment portfolio throughout your investment journey. But, again, this is a delicate decision that must be made without letting emotions (positive or negative) influence your judgment.
Investments can involve a lot of nurturing, so you should keep track of your money. Try to track and analyze performance to get a good idea of patterns and how environmental factors can affect the value of your assets. Luckily with Peccala’s automated trading algorithms, you don’t have to be so actively involved compared to the rest of your portfolio.
7. Ignore market fluctuations
As long as you consider each of the following steps, adverse market fluctuations shouldn’t cause you to panic.
Having a solid portfolio prevents impulsive decisions.
It’s easy to follow what the rest are doing, but it’s not necessarily the right thing for you. Remember when COVID-19 first hit and everyone bought loads of toilet paper? If you were one of those, you might’ve ended up with a year's unnecessary supply. So it’s the same kind of thinking here. Just because a group of people is doing it doesn't mean it makes the most sense to you. There’s no one-size-fits-all approach, so stick to your plan and goals, and you’ll be able to weather out any market storms.
8. Educate yourself
Become a lifelong learner for everything in life. It never hurts you to enrich your mind and understanding of various topics. Whether you manage a portfolio or not, understand the world of finance and how it operates. You can do this by keeping up with new financial products or reading investment books by well-established industry experts. Also, having a general awareness of financial news and picking up the habit of learning one new topic from time to time can pay off in the long run.
The more you become aware, the great you’ll be able to control certain events and life and have the knowledge to make the best decision for you.