If it were possible to achieve great investment success without any risk, I would certainly think so, even the simple reality of investing is that it is risky. However, with planning, knowledge, and experience, this risk can be minimized and is overall a very effective way to achieve your financial goals.
The kind of plan you adopt really depends on what works best for you; you may prefer an aggressive strategy with the highest return and risk, or an unaggressive strategy with lower return and risk, or even something in between. You may also prefer investments that are only relevant to you and only require constant attention, or you may prefer to be involved in investing and always know exactly what you are doing with your money. There’s no ideal plan for investing, and no real secret to it, but these simple tips can help your investments succeed.
Tip 1: Set your motivational goals
Goal setting is very effective when it comes to investing. It helps you set goals, gives you direction, and can be very helpful in motivating you to do things to achieve the desired results. Setting motivational goals depends entirely on your personal preferences. Your motivation may be to recoup enough money from your investments to buy a luxury yacht, or to have 20 investment properties in your portfolio. There is no right or wrong goal, as long as it gives you direction and motivation to aim for, you are on the right track.
Tip #2: Do your homework.
Given the potential risks associated with any investment, it’s important to do your homework. You wouldn’t walk into a driveway and not want to talk about a particular car, and you wouldn’t buy the first car you see, you’d do your homework first, right? For example, you have several criteria, you may want to look for a reliable car, a car that works well, a car that you like, and mainly a car that ticks all the boxes.
The same goes for investing, you may not get better results by investing in the first stock you come across or the first property you check out. When it comes to the stock market, you may need to look for news or press releases for a particular company you’re interested in and check your stock price history. And for a property, you can do a background check in the suburbs to find out what previous sales prices have been, get the property, and check for pests. There are countless things you can do to make sure you make wise investment decisions, and doing your homework is better than most.
Tip #3: Invest regularly
Investing is not a get-rich-quick method; to be truly successful, you need to invest on a regular basis. The best opportunity to gain measurable wealth is to get into the habit of increasing your investments regularly and investing where they will serve you best. You can invest $10,000 into a promotional account and earn an average of 20% per year. If you record these profits every year for ten years, you will earn $2,000 per year, but after maintenance fees and losses due to inflation, taxes, etc., you will still only have $10,000 in your account.
However, if you reinvest the $2,000 each year, your total net worth after ten years will be about $62,000. Now you have $62,000 in your account, and at 20%, you have the potential to earn $12,400 per year, whereas in another scenario, you would only earn $2,000. This may not include potential losses in all scenarios, but the idea is to emphasize the benefits of replenishing your investments on a regular basis?
Tip #4: Keep an Investment Diary
Tracking your investments can be a great learning tool to determine the strategies that work best for you and can also be a source of information on why your investments are working well or why they are not.
Having the right information at your fingertips, which you can refer to at any time, will allow you to make smarter investments in the future, reducing risk and increasing potential returns, thus increasing the success of your investments.
Tip 5: Diversity
Variations on an old wooden boat, jokes (see the anchor link if you haven’t seen it), and diversification in effective risk management tools to improve profitability. The type of diversification strategy should depend on your age, income and investment goals.
For example, if you are very young and just starting to invest, you may be exposed to higher risk and you can invest your assets in stocks with long-term potential, as well as in stocks with higher risk and higher potential returns. If you are nearing retirement, it may be more beneficial to move your assets into income-producing stocks, such as bonds or utility stocks.
Your diversification strategy might include building a portfolio that is evenly composed of different investment instruments, such as bonds, local stocks, foreign stocks, and real estate. Once a year, you can set up each machine to take profits from profitable investments and divide them among losing investments, maintaining the same asset allocation.
Tip #6: Make a plan and stick to it.
The road to successful investing can be full of distractions and obstacles that can take you off your path, overcome them and stay on track by having a plan and sticking to it. No matter how extremely basic the beginning is, with only major goals, milestones, strategies, etc., know where you are going and set out the conditions to get there. Once you get more involved, you’ll adjust and refine your plan to make it more effective.
For example, your goal may be to own 5 investment properties in 5 years, and you may find that in order to reach your goal, you will need to work 5 hours of overtime per week, cut some costs, and get some training or knowledge on how to work effectively as part of your plan. Your step can be to make sure that you have at least one investment property each year. Now, if you’ve missed a step, it’s not over yet. All you have to do is review your records, find out why you didn’t reach your goal, and make the appropriate changes to your plan. If you do achieve your goal, it doesn’t mean that there isn’t room for improvement, although you need to reward yourself for a job well done, and rewards are a great motivator.
Tip 7: Manage Risk
You can effectively manage risk by following the tips above, such as doing your homework, making a plan and sticking to it, and diversifying your investments. In addition, you can manage risk by first determining what your risks are; the most common risk when investing is the obvious loss of money. But what causes a loss of money? Just, for example, when you invest in the stock market, there is a risk that the stock will do the opposite of what you actually do, or that you will sell at an early stage and lose out on potential profits.
When you invest in real estate, there is a risk that the value of the property will not grow as expected or that you will not be able to rent it out. Once you have identified the potential factors that could cause you to lose money on this investment, you can begin to develop a plan to manage the identified risks.
A risk management strategy may include avoiding the risk altogether and looking for something else to try to reduce it, or simply accepting it. Whatever your plan is, just make sure the risk is monitored and constantly look for ways to minimize it.
Generally speaking, success in investing can be achieved with a combination of the above techniques, but don’t limit yourself to these, it’s a constant learning process and no investor knows everything there is to know about investing. Find out what works best for you, and then do it to invest successfully.