How To Get Your Investment Strategy Spot On!

By BankBazaar | August 8, 2017

“You cannot save time for future use. But you can invest it for the future you.” Isn’t this true? So, how well are you investing your time? We bet you have heard, as you sow, so shall you reap. While this has a deeper meaning, this is applicable for your finances too. You will reap good returns only when you sow your investments correctly. For this, you require a smart investment strategy.

While there isn’t a fixed plan that you ought to follow to be a smart investor, we must tell you that smart investing isn’t that difficult if you follow a certain set of rules ardently. If you want to be a successful investor, we know just the right mantra for you. Read the following principles and follow these with discipline and you will see a positive change in your return on investments. These commandments will tell you about the things you ought not to do with your investments.

Don’t be a gambler

Are you a gambler or an investor? While both want to make money, there’s a huge difference between the methods used by each of them. While investors carefully choose their portfolio, gamblers are more likely to go for guesswork or hunches while investing. There’s no harm in taking a slightly risky decision. However, if all your decisions are driven by the thrill of risk, that’s the wrong way to go about it. Gamblers generally put their money at risk by investing in risky assets and suffering the negative impact. It’s a must to always question yourself if you are investing to make profits or for fun. If it’s for the latter, you are certainly gambling your money. If you are looking for financial security, you have to put your money into assets that will help you make profits.

Don’t be gullible

With the advent of social media, it’s not a new thing to come across articles with catchy headlines. However, don’t fall for everything that you read online. Sometimes, you may come up with headlines like, ‘Invest in these stocks or you will regret’, ‘these top ten Mutual Funds will make you wealthy instantly’ and the likes. As interesting as it might sound, wherever you get a whiff of fast money-making strategies – beware! There are a lot of websites that publish financial forecasts. Honestly, telling the future of finance related things is not possible. So, make sure you don’t fall prey to such financial forecasts. Even if there’s a mathematical explanation to a certain forecast, don’t forget that the things which can’t be known have no certainty. Got it?

Don’t overdo diversification

We bet you have heard over and over again that you should diversify your portfolio. However, you need to understand that diversification is only good up to a certain limit. Beyond that limit, diversification will only worsen your portfolio. While it’s not a safe bet to put all your money in the same basket, putting it in too many baskets too isn’t a good idea. Hence, you need to strike a balance between the two. It’s time to reassess your portfolio. Your asset allocation model should be diverse: it should include the right blend of investments with varying levels of risk. You can seek advice from your financial advisor so that he/she can come up with a plan that will help you achieve your financial goals faster. So, go on, diversify already.

Additional Reading: 10 Things You Should Ask Your Investment Banker

Don’t forget to invest defensively as well as offensively

When you plan to invest, it has to be done defensively as well as offensively. The first objective that you need to follow is that you need to focus on the return of capital and then on return on capital. This will help you be in control of managing your loss.

What you need to do to achieve this is, strategise your investments such that risk exposure is at an acceptable level, be it during a normal situation as well as during the worst case scenario. Cool? So, this is all about investing defensively. Now, let’s move on to investing offensively. Well, it may seem like investing offensively means doing the opposite of investing defensively, however, that’s not the case. In fact, investing offensively and defensively go hand in hand and help build the perfectly balanced investment strategy.

While you invest defensively to control losses, you should invest offensively to get gains while you are following the former. Missing out on either of the two will only give you an incomplete investment strategy. As an offensive investor, you have to improve your purchasing power. This can be done by gaining enough profits to beat inflation, taxes, capital losses on other investment, transaction costs, among others. So now you know what you need to do in order to improve your investment strategy.

Don’t be reluctant to pay where it’s needed

It’s okay to be cautious with your money, but overdoing it is certainly not okay. So, if you try to save every penny that you can, it’s a good thing. However, if you follow this ideology for expenses like taxes, brokerage, transaction costs, among other things, it’s not a good sign.

Don’t ever miss out on paying your taxes because even if you save a little money, you will end up paying a lot more when you are caught in the act. There are a lot of people who miss out on good investment opportunities because they didn’t want to pay the high fees that came along with it. Well, you have to take a calculated risk.

You have to calculate if the transaction will help you grow your wealth or not. You have to figure out if adding a certain asset to your portfolio will with its excessive fees, is actually worth the cost or not.

Additional Reading: Investments For Young Professionals

Don’t forget to invest in yourself

While this may sound very generic, it’s a very important point. Unless you invest in yourself, it’s absolutely unfair to expect good returns on investment. While most people follow a lot of the above-mentioned principles without difficulty, they forget to invest in themselves.

The truth is that people underestimate the importance of investing in themselves. Your knowledge and skills with regards to investing will be reflected in your investment results. So, it’s up to you to up your game. How would you rate your financial intelligence? If your answer to this question is not very good, you need to take measures to improve it, as soon as NOW! Only when you improve your financial intelligence will you be able to improve your portfolio.

Whether you wish to just start your investments or you want to improve your current investments, financial knowledge is a must and that’s why you ought to give time to reading more about finances. Invest your time in reading finance websites, books and newspaper columns. Thank us later!

Now you know commandments to get your investment strategy spot on! Don’t wait any longer to make your financial dreams come true. Irrespective of where you are currently stationed, that is at level zero or earning but not investing or have accumulated wealth but not invested, the above-mentioned points will come to your rescue when you are strategising your finances.

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