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Eight steps to successful investing

Aug 14, 2020

Investing can be a risky business. What, then, is the best way to mitigate that risk? Oliver O’Connor provides eight helpful tips on how to give your investments the best chance of success.

Investing depends a lot each individual – what risk level you are comfortable with, financial goals and your circumstances. However, if you are thinking about starting to invest, here are some eight tips to help you along.

Objectives

Before making an investment decision, it is vital to identify what you are trying to achieve. Having objectives will give you the confidence and discipline to manage your emotions at times of uncertainty.

Time horizon

Time horizon (i.e. the time you expect to hold an investment) can have a significant influence on your investment decisions, as it helps to identify your ability to absorb short-term risk for the benefit of long-term returns. Generally, a shorter-term investment should be taking a below-average risk, with longer-term investments taking an above-average risk, relative to each investor.

Risk tolerance

We all have different emotions and biases which influence our behaviour with money. Acknowledging how you react to investing in positive and negative environments helps to identify the types of investments which are right for you. Combining your objectives with time horizon and risk tolerance should set the base for any investment decision you make now and in the future. 

Diversify

Diversification of, and within, asset classes can help reduce risk and smooth investment returns. Diversification across the various asset classes is key to identifying the right level of risk for you and your investment. It’s key to note that diversification within each asset class reduces risk which is specific to an industry or region.

Avoid market timing

It is impossible to tell which asset class or sector will outperform in the years ahead. Global diversification within the right mix of asset classes will allow you to benefit from investment returns whenever and wherever they occur.

Manage your emotions

It can be difficult to separate your emotions from investing. Acting on these emotions can lead to irrational decisions which damage your investment’s performance over the long term. 

Filter through the noise

The constant stream of information through online platforms and 24-hour news can be overwhelming and compel investors to be reactive with their investments. It is important to remember these sources are speaking to a general audience. They are not aware of your current objectives and long-term goals, so do not let them influence either.

Focus on what you can control

As humans, we are drawn to chase returns and the next big winner. However, we have no control over the returns on offer in the future.

What we can do is ensure we give our investments the best chance of success by focusing on what we can control – time, risk and behaviour. This usually requires the help of a professional, to ensure human behaviour does not adversely impact your long-term returns and objectives.

Oliver O’Connor is Partner in Private Client and Wealth Management in Grant Thornton.