Fiducia Partners Insights - Fundamental Principles for Investing Success

Fundamental Principles for Investing Success

September 13th, 2019 Posted by Investment, Planning 0 thoughts on “Fundamental Principles for Investing Success”

No investment is without risk but as seasoned investors will tell you there are a few principles you can follow for making better investment decisions. The principles I have listed below all try to help you to focus on that which is in your control rather than taking chances on that which isn’t. 

1.Define your investment targets

Investing is not an end in itself. Whether you’re looking to meet a specific need or investing for future generations the target will define the strategy. However when defining targets I would never recommend investing for the ‘short’ term. Short term usually means high risk. When buying an investment at a favourable price it may take time for the market to recognise its true value and for you to make a healthy return. 

As Warren Buffet says, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

2.Find your risk tolerance

No one enjoys losing money but some can tolerate the risk of losing money more than others. I’ve spent a lifetime investing and working with investors and most set their expectations on returns too high but are not prepared to take the corresponding risks. Finding your risk tolerance should include an assessment of what you could withstand to lose, should your investments not pan out, and still remain in a stable financial position. If you’re not prepared to risk even that then you’re on the low risk, low reward path. 

3.Don’t be blinded by greed

No one likes to think of themselves as greedy yet it often blinds people from seeing reason. Many investors have regretted investments that supposedly offer high and safe returns but what they fail to see are the hidden costs and risks involved. It goes back to the saying, if something seems too good to be true, it probably is.

4.Diversification is vital

Diversifying so you’re not over-exposed to any given asset type, country, sector or stock is critical and a small amount of diversification provides enormous benefits. Five investments are better than two, ten are better than five but this is only true until you get to the point where the costs for adding additional investments become greater than the benefits. 

5.Think and act intelligently

Many investors are successful in building a sound investment portfolio but fall when they fail to stick with it when the markets falter. Successful investors don’t allow themselves to be swayed by the latest news and short-term variables. Patience and stamina are required. 

6.Review regularly

As asset values rise and fall your portfolio can shift away from your risk profile and objectives. You may need to adjust your original weighting and regular reviews also give you a chance to consider your own circumstances.

7.Remember what your money is there for

While there’s a lot to be gained from a good investment strategy and careful money management, remember, not every penny must be invested for profit. Money is also there to be spent on what makes you happy, on what makes other happy. That too is valuable. 

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For more of my insights into the world of family wealth visit the Fiducia Partners website

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