Golden principles of investment

12/10/2022 0 By indiafreenotes

Investing your money can be a fantastic way of building a better financial position for yourself and your family. It’s not possible to predict what the markets will do in the future, but these investing tips may help improve your investment success over the long term.

Leverage the power of compound interest

Over time, as your investments earn interest, if you reinvest those earnings, you earn interest on your interest. This is the core idea of compound interest. Without any extra effort on your part, compounding interest and time work together to potentially increase your investment returns.

If you start saving early, you take advantage of the effects of compounding interest on your investments over a long period of time. This has the potential to increase your total returns.

Embrace an Investing Strategy

It’s important to know what kind of investor you are and adhere to the principles of your investing strategies.

Use Rupee-cost averaging

Sticking to the discipline of Rupee-cost averaging can help you avoid making emotional decisions based on market turbulence. With Rupee-cost averaging, you invest a certain amount of money at regular intervals, regardless of what the market is doing. By always investing the same Rupee amount every month or other chosen period, you naturally buy fewer shares when the market is high and more shares when the market is low.

Asset Allocation

Your asset allocation, how you divide your portfolio among different asset categories, will be the biggest determinant of your investment returns. Many investors fail because they put little thought or effort into their asset allocation strategy.

If you place your money into overvalued asset categories you will experience poor long term returns. It’s important to overweight asset categories that are bargain priced and underweight or avoid asset categories that are expensive.

Know the risksInvesting your money can be a rewarding experience because of the risk involved in the process. Generally speaking, the greater the risk, the greater the reward. However, an acceptable risk for one person may not be an acceptable risk for the next. While investing your money may sound daunting, you don’t have to manage your portfolio yourself as long as you understand the risks behind investing your money, you can hire a portfolio manager to do the legwork for you. Are you comfortable losing money if the stock market performs poorly or does any sort of investment loss make you nervous? These are the types of questions to think about and discuss with an advisor to help gauge your tolerance for risk.

Investors with more time to recoup market losses may be more comfortable taking risks. However, as you near retirement or if you’re already retired, you may want to adjust your risk tolerance to make sure your investments are consistent with your goals.

Know your financial limitations: There is a very real risk to investing more than you can afford. If you want to make the most of your investments, your money shouldn’t be keeping you up at night. Instead, it is far better to invest an amount each month which is appropriate to your financial situation.

Keep Expenses Low

Most investors don’t realize how much difference high expenses make to their portfolio. Take a look at the what happens to your returns with a 1% higher expense ratio;

Review and rebalance your portfolio regularly

Over time, investments within your portfolio will grow at different paces. As a result, your diversification and asset allocation can become unbalanced. Add in any changes to your income, risk tolerance or family situation and your investments may no longer reflect your goals. An annual review of your portfolio with your advisor will give you an opportunity to fine-tune and rebalance your portfolio to help you stay on track toward meeting your financial goals.