It is human nature to focus on what is in front of us, but we place too much importance on current events and dedicate far too much time trying to make investment decisions based on our own assessment of the situation. Worse still many people tend to over-rate their own abilities when analysing current situations and therefore don’t make good investment decisions.
Successful investors are either better at making the right assessments (few) or more often they are able to look beyond short term issues and focus on what really matters. When it comes to investing, focusing on the long term helps avoid making expensive short term mistakes.
Here are some rules that will help investors in the New Year.
1. Review your goals – We all have different reasons to invest and it is important to remind yourself what the investments are for. This can impact your attitude to risk and your ability to tolerate a loss. Review your goals and make sure your investments are suitable and appropriate. High risk assets might not be appropriate if you are close to achieving your go
2. Only buy something that fits into your portfolio - Fund ideas and recommendations are not made specifically with you in mind. It could be topical, or driven by a marketing departments need to drive sales. Think about how a new fund purchase would fit into your portfolio. And how will it affect your risk exposure, liquidity and diversification.
3. Diversification - This is about making sure you have the right mix of assets in your portfolio. Make sure you have a mix of bonds, equities, commodities etc. that matches your risk appetite. Getting the right asset allocation is the most important factor to investment returns.
4. Review your investments - A surprising number of investors don't do this. But reviewing your investments means you keep on top of the performance of them and only have the funds that suit your current objectives. Give your portfolio an annual spring clean.
5. Buy low - It is human nature to avoid investing in stock markets when they have fallen or risk seems the greatest. Buy low, sell high is an obvious mantra but few investors actually do it. When markets are low investor confidence is also low so they do not invest until markets have recovered and confidence returns. Don't follow the herd, buy when markets are low.
6. Keep making new investments – The best way to grow your savings is to use as much of your annual ISA & pension allowances as you can. These are the best ways to grow your wealth. Regularly topping up your investments mean you can buy at different times and feed money into markets at potentially attractive levels.
7. Think long term – Many people invest for their retirement so could be invested for 40 years or more. Thinking long term helps stop you overreact and make rash decisions and instead you can concentrate on the important factors.
Adrian Lowcock is investment director at Architas.
Keep up to date with all the latest personal finance news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.