Your investment strategy – staying strong and staying put
So there you were, you’d just begun to read reassuring articles about America recovering from its recession, and then … economic mishaps in Greece threw the global market into disarray.
You pride yourself on being aware of the ramifications of unconnected, distant financial maneuvers, but how are you supposed to continually react to these events, and safeguard your investment strategy? The short answer is – you’re not … if you have a well-constructed financial investment plan in place.
Invest time in planning your portfolio
Knee-jerk reactions are often disastrous. Your portfolio should be the result of much research and advice, in keeping with your short term and long term requirements. Asset allocation and diversification are two of the most important keys to the long term growth of your portfolio. They provide the basis of your stable yet profitable financial strategy.
Whether you research yourself, or take advice from a trusted investment manager, the bottom line should be a diverse portfolio that reflects your needs and temperament. The actual percentage breakdown of share allocation versus bonds, real estate or other financial assets will be highly dependent on your desired risk element.
Dollar cost averaging can be a helpful pointer in structuring your portfolio. It allows an investor to reduce risk by investing small amounts over a long period of time, similar to what many Israelis do with their keren hishtalmut or kupot gemel. The investment amount remains the same regardless of the price of the shares. So even when the market declines, your chances of successfully investing increases as you consistently invest through down markets, when prices are lower, giving you a greater potential long term gain.
Keep a cool head!
Once you are confident that your portfolio reflects your needs – stick with it! Whereas this doesn’t mean that it is carved in stone, you should make changes only after cool introspection over a substantial period of time, and level headed discussion with your investment manager. Your diversified portfolio means that when some areas are not showing the desired results, other areas are! Investors lose money when they rush to pull out of what they view as ‘bad’ investments and buy into ‘good’ ones … and do that repeatedly, not giving time for the ‘bad’ to become ‘good’. Consistent investment choices are most likely to show you a profitable return from your portfolio.
Benjamin Graham, financial genius and mentor to Warren Buffet among others, wrote “the investor’s chief problem – and even his worst enemy – is likely to be himself”. He noted that even when investors have a good stock strategy, they often lose money because they can’t stick to it. Consistently following a single, coherent strategy is of vital importance.
Tune out the sensationalist media, tune into the ‘small’ things that can make the difference
With all the various forms of media constantly bombarding us with information, it is very hard to filter the facts that you can use productively and constructively. However, keep focused on your specific portfolio needs. Break down that torrent of information into pertinent facts, which might include those regarding funds that you are interested in, or information about tax laws that are relevant to you. Those ‘small’ things can well make a difference. Being overwhelmed by the media which, for the most part, offers a short-term perspective, will be detrimental to your financial well-being.
It won’t be easy, but it will be worth it!
Sticking to your well-planned strategy through the markets’ ups and downs will not be easy. Tuning out the barrage of media advising you to act differently will require strength. But it will be worth it, and the long-term financial rewards you will reap will be very sweet!