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    Rules for successful investing

    Wouldn’t it be nice if we could see into the future? Imagine the success you could have if you knew exactly what was going to happen on the stock market!

    If you could anticipate the fluctuations, you would know when to buy or sell and would definitely be able to rake in the dollars. But unfortunately, nobody has a crystal ball and when it comes to investments, it’s much better to take things at a slow, steady pace.

    Today we take a look at some of the rules for successful investing… you don’t need to be an oracle, you just need patience.

    Compound interest

    Compound interest

    One of the first things you should consider is how you maximise your wealth building. If you are already invested and your portfolio is producing solid results, then it could be a good idea to reinvest the returns.

    If you are in a position where you don’t need to spend the income that your portfolio generates, reinvesting helps you to build your investment capital. And over time this is where you will see the benefits of compound interest.

    This can be a powerful strategy because each time you reinvest, you are boosting your future potential returns… whereas if you simply withdraw your income and spend it, you tend to stay at the same level of earning potential.

    Of course, if you need the investment returns to pay for something specific then that should be your priority, but even if you can reinvest just some of your earnings it can be advantageous in the long term.

    Understand investment cycles

    Understand investment cycles

    In addition to recognising the importance of compound interest, it’s also crucial that you have some understanding of investment cycles.

    Fluctuations happen – they’re impossible to avoid – but all investments and asset classes move through identifiable cycles. This is where you might want to seek guidance from a professional financial advisor. They can help you understand where you are at the current point in time and make recommendations accordingly.

    You don’t want to invest too late in the cycle and end up paying a premium price. Even if it’s a great investment, if you pay too much it reduces your potential long-term returns.

    Long-term focus

    Long-term focus

    Focusing on the long term is essential when you are an investor. You need to make sure you don’t get bogged down in the day to day market movement. Short-term activity tends to have greater risk and if you pay too much attention to the volatility you could end up panicking and making rash decisions.

    When you commit to a long-term strategy, ideally around ten years, you are more likely to experience consistency and feel confident in your decision making.

    Diversify

    Diversify

    Ever heard the phrase ‘don’t put all your eggs in one basket’? Well, this is definitely true for investing. The main reason is that asset classes perform differently throughout their cycle and if you are 100% invested in a single asset then you risk experiencing dramatic swings in your returns.

    If you have only one type of investment, you could be riding a rollercoaster of emotions as the individual asset varies in performance. But when you have a diversified portfolio, you experience greater stability and don’t tend to be subjected to the same level of perceptible highs and lows.

    Having a good mix across all asset classes will help minimise the bumps over the long term.

    Don’t follow the crowd

    Don’t follow the crowd

    In today’s world of constant information, you’ll be hearing about new investment opportunities almost every day… but it’s crucial you recognise that not everything you hear deserves your attention.

    Try to become immune to the buzz or noise around the latest ‘sure thing’ and resist the urge to follow the crowd. Usually, when word gets out about a sound investment, lots of people will jump and end up buying past its peak.

    Just remember, if something sounds too good to be true… it usually is!

    We are here to help

    Here at North Advisory, we know that building your investment portfolio can be a challenging process. But we are here to help!

    Our team can provide guidance about the most appropriate spread of assets to put you on the path towards achieving your goals… and we support you as you learn more about investment concepts. If you’d like to talk to one of our wealth specialists, please contact us today. Read more Personal Wealth Management articles.