Successful long-term investment is not just about buying low and selling high – although that is always a good principle to bear in mind.
Share prices can be susceptible to unpredictable external factors ranging from political newsflow to the weather, which can lead to investing – particularly during times of high volatility and uncertainty – feeling a bit like negotiating a minefield.
One way to make sense of such a potentially confusing world is to go back to basics – markets may rise and fall but the rules of sensible investment remain constant.
Buy what is right for you
Just because an investment works well for somebody else does not mean it is necessarily right for you. Consider your own situation – your future liabilities, your investment goals,
timeframes and, most importantly, your appetite for investment risk be it lower, medium or higher – and then make your decision.
Spread your risk by diversifying your portfolio across a mixture of asset classes, industry sectors and areas of the world. If you put all your money into a single asset class,
sector or company, your portfolio becomes vulnerable and performance is likely to be volatile. However, mixing it up means that, when the value of one asset is falling, another
might be rising and so could help to compensate towards your expected returns.
Never buy what you do not understand
History is littered with funds that promised a great deal but when faced with pressure from the market, collapsed with all those promises broken. Some shares or funds might sound
very exciting – and perhaps straightforward – but if you do not really understand exactly what the company does or how the fund works, steer clear.
Do not become emotionally attached
It is wonderful if a holding has worked for you, but you do not have to feel too attached – the share or fund does not know you own it. You should look at every existing investment with the same clear-headed objectivity as you did before you bought it – and, when it is time to sell, do so with a clear conscience.
Be your own person – do not follow the herd
Many investors became caught up by the euphoria that surrounded the ‘dotcom’ boom of the late 1990s, simply because everyone else was excited and they did not want to miss out. Consequently, they bought into companies that promised much and delivered little or nothing. It is hard to swim against the current but always take a step back and consider not only what you are buying but why. There are a number of “multi-asset” funds in which to invest and are a good starting place for most. These offer a blend of equities, bonds and cash that are managed for you by very large institutions and cover most investment risk parameters.
Review your portfolio regularly
Your portfolio should have been constructed to meet objectives based on your existing needs and your goals for the future. However, over time, your needs and circumstances can change – as indeed can the markets – and your portfolio may require the odd tweak to make sure it keeps up. Review it regularly – perhaps every one to three years – and make sure
it stays on track.
Do not believe everything you read or hear
Headlines on television and in the newspapers can initially be just as misleading with regard to finance and investment as they are to, for example, sport or celebrity gossip. Try not to
be distracted by day-to-day ‘noise’. Instead, make sure you keep a clear head, remain focused on your objectives and take advice from a qualified professional to ensure you are making the most of your investment portfolio.