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The principles of investing

The principles of investing

In times of extreme financial volatility such as these, when inflation is higher than it has been in a generation, and we see values of almost all assets dropping in value, it is more important than ever to stick to the tried and tested principles of investing.

Becoming a successful investor requires both planning and discipline. Planning means thinking carefully about everything you need to consider when developing your investment plan. Discipline means sticking to a pre – agreed investment strategy regardless of market movements or volatility.

It also requires a certain amount of knowledge, which we hope to answer in the article below:

What are the key principles of a robust investment strategy?

  1. Have a written plan
    The foundation of any successful investment strategy is to establish a financial plan, with clear investment objectives and a defined time frame for investment
  2. Diversify
    We are all familiar with the saying ‘don’t put all your eggs in one basket’, and one simple way of reducing your investment risk is by diversifying your portfolio
  3. Time in the market – and not market timing
    Successful investing is not about knowing when to buy and when to sell a certain asset. A better approach is to take advantage of time as a mitigator of risk by investing early and over a longer period to ensure profitable returns regardless of short term hiccups. Successful investors make their money over time, not overnight
  4. Save on a regular basis to reduce risk
    This simple strategy of saving on a regular basis, (often known as Pound Cost Averaging), refers to the practice of building investment positions by investing fixed amounts at equal time intervals, as opposed to simply investing a lump sum all at one time
  5. Review your strategy regularly
    As we all know, the one constant we can expect in life is change. This is why it’s so important that you ensure that you review your strategy on a regular basis, usually at least annually

In our next article we will be looking at assets classes. There are many different asset classes in which you can invest. An asset class is a group of investment products with the same features and governed by similar laws and regulations.

  • Equities (stocks)
  • Fixed income (bonds)
  • Cash equivalents (money market instruments)
  • Real estate
  • Alternative investments

Finally, as Benjamin Graham, known as the ‘father of Value Investing’ once said, “Successful Investing is about managing risk, not avoiding it”.

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