A well thought-out investment strategy is the key to success in the market. Find out about the basic rules that will help you organize the way you operate and build your own investment plan.
1. Create an investment plan based on your goals and update it periodically
● If you want to create a solid investment plan, assess your financial situation. It’s important
to be realistic about it. Running home budget is a good way to keep tabs on your everyday
expenses and will allow you to estimate how much money you can allocate for investments.
● Periodically review your investment plan, especially if there’s a major market shift or your
financial situation changes (for example you get a raise or your costs of living increase) and
adjust it accordingly.
2. Assess your attitude towards risk
● Some of your investments may not perform the way you wanted, because investing always
goes with some level of risk.
● The rule of thumb is that the higher the risk, the higher the potential reward. You can
mitigate the risk in different ways, but before you do that, you should assess what your risk
tolerance is. In other words, you must assess how much of the invested money you are
willing to lose if something goes wrong.
● The level of risk depends mainly on what instruments you invest in, because different types
of assets perform differently. For example, stocks are considered to be more volatile than
bonds, but they also tend to outperform them. Crypto-assets are even more volatile, so
potential gains – but also risks – are exponentially higher
3. Diversify your portfolio and keep it adequately diversified
● Remember, don’t put all your eggs in one basket.
● Portfolio diversification is a basic and common method of mitigating the risk. You should
build your portfolio depending on your risk tolerance. For example, if you have high aversion
to risk, your portfolio should include more bonds than stocks and be free of crypto-assets.
● Macro-economic situation may change, so remember to rebalance your portfolio regularly
in order to keep it aligned with your risk tolerance
4. Choose financial services that suits your needs
● Most of the time, before you can start investing, you have to choose a brokerage house or
other company that will act as your intermediary. Different firms may offer different
investment products (such as stocks, bonds, investment funds’ units, crypto-assets etc.), as
well as different fees and services. For example, some brokerage houses might provide
some form of investment advice services, for example robo-advisory.
● If you feel up to it, you can invest on your own. However, if you are not sure how you should
invest, you can always use the services of advisors (or robo-advisors), although bear in mind
that most of the time you’ll have to pay for their services.
● For more information on selecting an investment firm, click here
5. Try to minimize investing fees, as well as tax burdens
● As we stated before, different investment firms may charge you differently for their
services. The lower the fees, the bigger your gains, but remember, there are other variables
that you must take into account while choosing an investment firm.
● If it’s possible in your legal system, use investment tax incentives
6. Use mechanisms to mitigate the risk of losses
● Apart from diversifying your portfolio, use other methods to mitigate the risks. Use stop-loss
or take-profit, and if you are not sure of your financial prowess, use services that might help
you (such advisors)
7. Be careful about the information you receive
● Carefully choose the sources from which you get your information. Follow reputable media
outlets and vet who you’re following on social media. Some less reputable outlets, as well as
financial influencers may have interest in making something sound in a particular way. Also
people active on social media or forums may have their own goals that are unknown to you.
What’s more, they may be using their followers to profit at their expense. For example,
hyping certain stocks or crypto-assets might be the signal that you might fall victim to the
pump and dump scheme.
● If something sounds too good to be true it probably is.
● For more information, click here
8. Knowledge is the key
● It doesn’t matter who you are or what you do, there’s always something that you might
learn about investing or financial markets that might be helpful for you
9. Do not react emotionally to market changes
● Markets can be volatile, but not as volatile as news surrounding it. Don’t let your emotions
cloud your judgement and analysis.
● Keep calm and carry on