How to ensure investment success

You have to have a process and hold principles to keep you on track. In this blog we will cover a few of the steps required to develop your strategy for successful investing.

1. Assess your goals and circumstances

The first thing you need to do is to assess your goals either by yourself or with your partner. Understanding this is crucial to the process and needs to align to your circumstances – this ensures that your goals are realistic and achievable.

2. Plan your asset allocation

Step 1, you must establish your feelings towards risk. This allows you to discuss what types of assets you will want to invest in and to also decide on what portion of your cash you wish to invest. First, we must allocate a portion of funds to cash, so that you have some money to spend.

Step 2, is to allocate a percentage to bonds, as these are low risk, long term investments. This is important because it provides you with a strong back up for your future.

Step 3, is to allocate a percentage to growth assets (shares and property). These are more high risk and require research and understanding before purchase.

3. Select your investment approach

Now that you have an asset allocation in place, it is time to select the vehicles which will drive your portfolio. In order to achieve the best outcome, it requires you to follow two cardinal rules: diversification and remaining invested.

To follow this, you can implement one of three approaches, however, I recommend the evidence based approach:

  • Conventional management
    – Relies on forecasting to select ‘undervalued’ stocks.
    – Very high risk as tries to predict the future.

  • Index management
    – Allows a commercial index to determine strategy.
    – Prioritises low tracking error over higher expected returns.

  • Evidence Based Approach
    Academic research.
    Structures along dimensions of expected returns.
    Adds value by integrating research, portfolio structure and implementation.

These steps are just a stepping stone and are very general in their advice. Ultimately, in order to achieve a proper understanding you need a professional to help you to analyse your goals and circumstances with you and put you on the best path to financial success.

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