When I speak of investment, it is always long-term. Otherwise, it would be called “speculation.” But not everything is technical strategies and ways of investing. We already know that, for the most part, a very important factor is mindset. Or well, to put it in less cool words, the way of thinking and what all our investments affect us.
Investment strategies for beginners in 2021
A quote is attributed to the Roman playwright Tito Maccio Plautus that has an unexpected relevance for those who invest: “the best is always the middle ground, since excesses always bring problems.”
We already know why it is necessary to diversify in the long term. Needs change over time, and shortcuts that might work one day could be ineffective (and even expensive) the next.
Invest in what we understand
Ignorance is never an advantage. In no clear area, but the investment of a specific sector or company a minus. This is why I am always talking about index investing.
“If you don’t understand the company you invest in, it is unlikely that you will be able to distinguish noise from truly relevant information that you should take into account when making decisions.”
So stay away from investment strategies that are too dark, complex, or that you can’t understand. After all, if you don’t understand how your investments work, do you expect them to be right for you?
Start investing as soon as possible
The longer the money is invested, the greater the growth potential it will have. Here’s how Warren Buffett used his stock investing strategies to his advantage: with patience.
“Investors who start early, exercise their patience, and stick to long-term investment strategies will typically enjoy better returns and greater financial success,” according to Colton Dillion of the investment app Acorns.
Someone who contributes 1,000 euros to a pension plan between the ages of 20 and 30 and then stops contributing will have an advantage over another person who starts at 30 and invests 1,000 euros a year for 35 years.
Assuming an annual return of 7 percent, the first person will have 168,515 euros at age 65, while the second will have 147,914 euros.
Manage cash flows well
“There is no other element of investment planning or portfolio management that is more important in the long term,” says Jesse Mackey, chief investment officer at 4Thought Financial Group (New York). This key is simple but crucial: invest money automatically during your working life (at least every month).
According to Mackey: “Sticking to a cash flow plan and evaluating investment strategies as they need to change over time puts an investor 90 percent away from achieving their goals.”
Separate emotions from targets
If you treat investment strategies with the same partiality as a supporter (or a rival) of a sports team, you will end up having problems.
“Separating your emotional involvement with a security from the purpose of investing in it will allow you to judge better and perform better ,” according to Kenneth Hoffman, the managing director and partner at HighTower HSW Advisors (New York).
“The more open-minded you are when thinking about investment strategies, the more likely you are to invest in something undervalued.” And conversely, investment strategies that you can’t execute won’t be worth much.
Convert discretionary expenses into investments
Those who put off their investments for years often confuse their needs with their wants. “Little by little, mobile bills, cable TV packages and automatic services of all kinds become necessities, so a future investor never becomes one.”
Says Stig Nybo, president of retirement strategies at Transamerica Retirement Solutions (San Francisco). “Investing involves discretionary income, and that takes discipline, so challenge everything that has become the norm but may not be necessary .”
Before you can become a millionaire by following your stock investment strategies, you must accumulate a large amount of initial capital. And that will be difficult if you have a lot of recurring (and unnecessary) monthly expenses.
Separate investments and cash reserves
“The biggest risk of investing needs the money at the wrong time,” according to Harold Evensky, a professor in the department of financial planning at Texas Tech University (United States). “
By dividing the funds you’ll need over the next three to five years (a business cycle or so) between cash accounts and high-quality short-term bonds, you won’t have to sell your investments at a loss.
In this way, you will have liquidity available whenever you need it, even if the markets sink.” This general rule refers to the cash you may need in the short term. Investing in stocks is usually the best option for the rest of your money.
Let stocks be the basis of your investment strategies
Zack Shepard, Vice President of Matson Money (Phoenix, USA), has no qualms about calling equity investments “one of the greatest wealth-building tools humanity has ever known.
Investors need them to grow their portfolios and beat inflation. Even taking into account some dying streaks that occurred during the 1960s and 1970s, the Standard & Poor’s 500 Index has produced an average return of 7 percent overall 20-year periods that have occurred since 1926.
So whether you’re following more complex investment strategies or just buying index funds, being in the market is often better than being out of it. And compound interest is the icing on the cake.
Diversify for smoother movements
“There are a lot of horror stories about investors who are too reliant on one stock or any other particular investment,” says Jimmy Lee, founder and CEO of Wealth Consulting Group (Las Vegas).
To diversify, As he explains, “the smart thing is to diversify between asset classes and within the same class.
For example, there are stocks for everyone regarding capitalization, geographic location, or growth versus value.
Although this does not guarantee profits or protect against losses in a bear market, diversification allows the movements to be potentially smoother”.
Make small adjustments
Portfolios typically only need a few adjustments over time rather than the comprehensive overhauls that nervous investors often undertake during cyclical crises.
“Investing is a long-term activity, not a sporting event where you have to make minute-by-minute changes,” says Dave Rowan, founder and president of Rowan Financial LLC (Pennsylvania, United States).
Therefore, the best investment strategies are based on making small adjustments from time to time rather than sticking to market times.
So be wary of investment strategies that promise to make you rich in no time and are described as once-in-a-lifetime opportunities.
Maintain discipline, be patient (and take into account everything I have explained). You will be able to maximize the potential of your investment strategies, as well as your quality of life.