I HAVE heard many words of wisdom over the years regarding investing, and listened to too many bar-stool ‘experts’ eagerly imparting their ‘Inversión del Día’, investment of the day.
Fortunately, I know another more reliable ‘investment guru’. And this one is always right and his name is History.
History knows a thing or two about investing:
- Have a plan and stick to it
A sound financial plan is the difference between living in hope and actually achieving your goals. It should encourage you to focus on long-term strategies and not be spooked by short-term distractions.
- Do not keep all your eggs in one basket
Ok, so it’s an old one, but diversification of your investments across different regions and asset types means you are less exposed to problems. Volatility in the EU and US caused by BREXIT and Trump had little effect on the world’s emerging markets, for example. Gold also helped to stabilise portfolios.
- Consider your investments as a whole
One wilting plant in your garden does not mean the rest of the garden is not blooming. Similarly, when one asset is underperforming, other classes in a diversified portfolio should balance this out.
- It is not timing the market that counts, it is time in the market
This is the least understood principle of investment. After all, knowing when to buy and sell is the secret of investment success, right?
In reality, nobody knows when the market will rise and fall, when to buy at the lowest price nor sell at the highest.
Trying to do this would be hugely stressful and ultimately, unsuccessful.
History’s proven approach is to use time to your advantage, the sooner you start to invest and the longer you invest, the more likely you are to have healthy returns.
- No risk, no reward
In volatile times, the temptation to run to the ‘safety’ of cash is almost overwhelming, but low risk investing generally means low or non-existent returns. Of course, keep some cash for emergencies, but for long-term plans this needs to be balanced with investments in differing asset classes and regions offering higher potential returns in the long-term.
After all, ‘a ship may be safe in the harbour, but that is not what ships are for’.
- Invest regularly, and get better results
History shows investors jump onto a rising market too late and panic very quickly in a falling market. Result, very few investors buy at the lowest prices or sell at the highest as they have inevitably miss-timed the market (principle 4). Better to focus on the long-term and continue investing regularly whether the market is rising or falling disregarding short-term volatility in favour of long-term results.
- Seek qualified, regulated independent financial advice
OK, I admit I have a vested interest in this principle, but it is valid nonetheless. Each investor’s needs are different and there is no substitute for a bespoke plan specific to your circumstances. Good advice can help take the emotion out of investing and lead to a more pragmatic approach to the long-term.
GOT A QUESTION?
Then ask the expert and drop Sandy Paterson, DipFA, CeMAP, MLIBF – International Financial Adviser at Blacktower Financial Management (International) on firstname.lastname@example.org or call him on 971 42 59 86
Also visit www.blacktowerfm.com/locations/mallorca