How To Stick To Your Investment Game Plan To Succeed
There are many obvious similarities between the strategies used to win in sports and to earn in investments. Those who understand the need to properly strategize have a better chance of winning in both areas.
In both areas, you need a good game plan to be successful. And no game plan is right for everyone. In sports, you need to know the strengths and weaknesses of yourself or your team to come up with the best plan.
The same goes for your investments. You need to know how much risk you can take and how long you can commit to the plan, as well as being able to stay focused and not be distracted by gadgets.
If you want to give yourself a shot at successful investing, you need simple, robust, sustainable, and insightful strategies. Here are five ways that will help you stick to your investment strategies to keep you on track to the finish line:
1. See your strategies as a process
If you cannot describe your strategies as a process, there is a higher tendency to steal it. To prevent this from happening, you need to master your strategies.
It is recommended that you write down your investment strategies in a flowchart, indicating what you will do or react to in different market conditions or investment situations.
Writing it down will help you articulate and visualize it, as well as guide you through tough market times on what to do, instead of making emotional investment decisions.
Every now and then, you need to check it to make sure it matches your long-term financial goals. Although your strategies are long, they are not set in stone, so always be flexible depending on the situation. If you notice flaws after some market experience or after a change in your financial goals, you should modify them accordingly.
2. Should you own or sell?
Your process should be able to help you decide whether to sell or own a stock objectively. To closely monitor the performance of your assets so that you can react in a timely manner, you will need to create two sets of goals for each type of investment:
- Targeted return (for example, I want to earn 10% per year by buying blue-chip stocks.)
- An acceptable risk margin or range of losses that you are willing to absorb (this is your stop-loss target, for example if you bought a stock at RM 8.00 you are willing to wait for it to fall. at RM6.50 for choosing to leave.)
These goals will avoid the problem of inaction that many investors tend to fall victim to.
Before embarking on any investment, you should have a clear idea of what you want to achieve. Without a proper plan in place, it will be difficult to make sound decisions when you are in a heated battle of waiting or exiting.
3. Measure the effectiveness of your investment strategies
How to know if your investment strategy is working or not. Do you have a way to measure the effectiveness of your strategy? Only when you can measure it can you fully understand how well it works and improvise if necessary.
You can use relative and absolute benchmarks to measure the effectiveness of your strategies. The benchmark you choose should match your financial goal, which should then match your investment strategies.
The relative benchmark refers to a passive market index like FBMKLCI, while the absolute benchmark refers to a targeted investment return, such as 7% per annum. This can be tedious and time consuming, but it is important for you to assess the level of risk you are taking against the benchmark you have set. Record the volatility of the returns of your own portfolio and compare it to the volatility of the returns of your benchmark.
By having these benchmarks, you will avoid making investment decisions based on emotions and rumors.
4. Set up a safety net for your investments
A common portfolio would include a mix of stock, real estate and exchange traded funds. However, if you’re worried about taking too much risk, bonds can be used as a safety shield against volatile market conditions.
The higher the quality of the bond, the better the hedge against investment losses linked to the stock markets.
Government bonds are more conservative and, therefore, generally generate lower yields than corporate bonds. For the sake of investment security, you can also opt to invest in unit trust funds and exchange traded funds.
5. Identify the amount of your investment
Identifying the amount of your investment or also known as position sizing will help you develop a realistic plan for achieving your financial goals. Position sizing means knowing how many shares to buy in an individual trade or how much to invest if it is a loose investment that will be set aside.
Unfortunately, most investors don’t give it much thought, which can make or break an investment’s performance.
First you need to set your financial goals and figure out how much you need, then go back to figure out how much you should invest and how you should invest.
For example, if your ultimate retirement fund is RM 1 million and you have 30 years to invest, you will need to contribute RM 600 each month and your portfolio will need to generate a constant return of 7.5% per year, assuming that your initial investment is 20,000 RM. . In order to achieve average returns of 7.5%, you need to be able to identify how much to invest in which investment product.
When it comes to investing, every investor will have a unique set of financial goals, which requires a unique set of strategies. Therefore, it is certainly not advisable to adopt or copy the investment strategies of your relative, friends or even an investment guru. You can learn from them, but you will need to develop your own strategy that matches your needs and goals.
Saving for a house requires a short-term win, which means you need to be a bit more conservative, while long-term goals like the retirement goal will have time to digest the ups and downs of the market. which will allow you to be more aggressive.
The three main determinants of any strategy are risk appetite, duration and asset allocation. The success of your investment will depend on how well you match these changing determinants with the performance of the market.
This article was first published in 2016 and has been updated for its freshness, accuracy and completeness.
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