When downward trends reduce the value of your investments, it can be tempting to pull your money out in advance of the situation becoming any worse. Hasty moves can be extremely dangerous when you are investing, and usually, if you stick with an investment, it will bring you great rewards in the long term.
How Do You Invest?
There are many ways in which you can invest, such as:
- Stock market trading.
- Investing in forex.
- Making voluntary contributions to your self-managed super fund (SMSF).
- Investing in property.
- Investing in gold.
No matter which types of investment make up your portfolio, it is highly recommended that you remain true to one investment strategy, rather than chopping and changing erratically. In fact, one of the most detrimental and all-too-common mistakes made by investors is failure to stick to their investment strategy.
Why is Sticking to an Investment Strategy a Problem and Can I Change It?
Usually, an investment strategy that is developed by a credible, informed and highly skilled professional is based on logic and awareness of economic circumstances. Too often, such an investment strategy is abandoned because of greed or fear.
Many different investment strategies exist, and while they differ in make-up, most have a good chance of working if they are followed precisely and consistently across a number of years and different investment cycles.
While it is possible to change your investment strategy – perhaps because you have had stock recommendations or want to learn to trade forex– changing strategies almost invariably brings about losses. This is the case when you want to make changes because of market downturns, when you emotionally feel compelled to make changes, and many other reasons.
The Value of Sound Advice and Education, Such as Forex Education
To avoid the negative outcomes so often resulting from switching investment strategies, it is very wise to seek informed, credible advice and even undertake specialised courses, including forex trading advice and training, in order to better understand and analyse a particular type of investment.
A financial advisor, accountant or other investment specialist has the important role of helping you to understand and adhere to your investment strategy.
Without an Investment Strategy and Understanding Your Investment Strategy
Without a sound investment strategy, investors are in real danger of taking on bad investment habits, such as buying shares solely on the basis of ‘hot tips’ and making decisions based on what is covered in the media.
Investors should be able to give an explanation of their investment strategy – even in the broadest of terms. No matter what the strategy used, the best outcomes are achieved when the strategy is followed consistently, and the only changes that are made are congruent with the overall strategy.
Although it may sound simple enough to do, sticking to your investment strategy can take some dedication in the face of hot new issues arising and pressure to take on new, exciting (and potentially risky) investments.
Some Pieces of Good Advice
- If you really do want to make changes to your investment strategy, ensure that you have a valid reason for every change and that the changes that will be made fit with the overall strategy.
- Ensure that changes are not driven by broker eagerness to make commission or a sense of restlessness that you want to do something new.
- Rebalancing the different asset classes of your portfolio is often a good (and necessary) way to make subtle changes that are still consistent with your overall strategy.
- Accept that, when a portfolio is well balanced, some investments will overperform, while others will underperform. Resist the temptation to sell off those that are underperforming and purchase more of the type of asset that is outperforming. Here, the danger is that changes are made just as circumstances and conditions are shifting –underperforming investments can quickly become fabulous performers.
- Spread your investments across markets, so that you do not rely too heavily on the domestic market. Forex education can help you to better appreciate this and equip you with skills needed for effective currency trading.
There are a number of real benefits to sticking with an investment. Hasty, impulsive moves are often the enemy of investors seeking to make substantial gains and improve their financial position in the long term.