Developing your Long-Term Investment Strategy
An investment strategy is the framework you develop to help you achieve your investment goals. In it, you outline what you want to achieve and in how long. It determines both the day to day financial decisions you make and the long-term adjustments you make to your life in order to support it.
Many people begin to invest without a strategy in mind; they just want to make a return. There is nothing wrong with this approach. However, if you are investing for the long term, a well thought out strategy will give you clarity and help you achieve your goals much sooner.
Here are a few factors you should consider when crafting your long-term investment strategy:
1. Match your investments to your goals
Understanding your goals, the time frame for achieving them, and your risk appetite is the first step. Once you know what you are working towards, you will be able to measure progress towards specific life goals, for example building your retirement fund, providing for your family, or buying a home.
2. Reassess your strategy regularly
Just because your investment is long term doesn’t mean you leave it in the fund manager’s hands and forget about it until you’re ready to spend it. At least once every year, re-examine your portfolio. It will inevitably become unbalanced because of how different asset classes perform. You should take the time to rebalance it accordingly.
It is also crucial to re-asses each time you go through a major life change, for example, getting married, having a child, or increasing your income. Such big changes might mean you end up with different priorities and that means adapting your approach.
3. Don’t leave all your eggs in one basket
Portfolio diversification is especially effective over the long term. A diverse portfolio earns you the highest return for the lowest risk. It is achieved by investing in asset classes that have varying risk levels and are not correlated, spreading out the risk.
4. Don’t try timing the market
Market timing involves moving capital in and out of equities in order to profit from the highs and avoid loss from dips. However, this is quite risky, and most of those who do it are short term investors. To protect your investment over a longer period, avoid timing the market.
Investing with a long-term view ensures you secure your future and that of your dependents. Want to start investing but aren’t sure how to go about it? Ask us how.