Investing is an important factor that decides financial success. However, market volatility is a big deterrent to many investors. While there are ways to beat market volatility with your Investments, being a disciplined investor is equally important. While you may exercise discipline with your Personal Loan or Home Loan repayments, with disciplined investments, you can surely achieve financial success.
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Let us help you assess your finances and find out whether you are a disciplined investor. If you aren’t, don’t worry. We can tell you what to do in order to achieve your financial goals.
Understand your investments
If you are looking to boost your investment returns, the first thing you must attempt to do is understand the basics of equities and fixed income investments.
Do you know these three facts about equity investments?
- Equities have generally had higher expected returns compared to fixed income investments. Fixed income investments offer investors a mediocre level of returns since the investment is not exposed to excessive risks.
- The stocks of small companies have higher levels of expected returns. But, these also have a high level of volatility when compared to the stock holdings of larger companies.
- Lower priced value stocks have higher expected returns when compared to higher priced growth stocks.
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Value stocks? Growth stocks? Sounds like Greek to you?
Don’t worry. We’ll decode them for you.
Value stocks are those that are traded at a lower price than their dividends and earnings. Therefore, these stocks are thought to be undervalued. Value stocks have high dividend yield and a lower price-to-earnings ratio.
A growth stock is termed as a share in any company whose earnings are expected to grow at a better than average rate in relation to the market. A growth stock generally does not pay out a dividend, but rather reinvests retained earnings in capital projects.
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Why do investors choose growth stocks?
Investors usually choose growth stocks based on their capacity for capital gains, rather than to receive a dividend income. This dependency on getting capital gains renders growth stocks relatively risky. In short, these are money making stocks.
Here are a couple of facts about fixed income investments.
- Investment instruments that have a longer term tend to be riskier than short-term investment instruments. This is because the longer term investments have an extended exposure to interest rate risks.
- Investments that have lower credit quality are generally riskier than the investments with higher credit quality. However, lower credit quality investments offer a higher rate of return as there is no default.
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The idea behind diversification is simple. In case one or two of your investment assets do not offer you positive returns, diversification helps you to minimise your losses. It’s possible a few investments may record losses over time, but the other assets you hold will compensate for that. Allocate your investment assets wisely and avoid putting all your eggs in one basket.
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Put simply, asset allocation means dividing your investment portfolio across various asset classes, such as stocks, bonds and so on. Remember, however, that asset allocations differ from investor to investor depending on their risk appetite.
All investments have varying degrees of risk. The more risks you are willing to take with your investments, the greater the chances of higher returns.
Additional Reading: Intelligent Asset Allocation
Rebalance your investment portfolio
You must remember to periodically rebalance your investment allocations in your portfolio. This should be done at least once or twice a year. Rebalancing is necessary because over time some of your investments may not fetch optimal returns or might not help you reach your financial goals.
A disciplined approach to financial investments is easy to achieve if you follow this handy guide.
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Are you prepared to begin investing for a secure financial future?