With concerns about a potential economic slowdown and global recession, it’s important to ensure that your money grows as much as possible.
Professional investors understand that holding different assets can help create a long-term strategy that can fight off inflation.
High returns are not a hundred percent certain in the markets. But having a long-term approach should provide your investments time to adapt to the highs and lows, eventually generating positive growth and potentially the ability to outperform inflation in the process.
If you’re only starting your investing journey, here are six things you need to have to build up your income and meet your financial goals in the long run.
- Time Horizon
Determining a time horizon before investing, i.e., assessing how much time you need to achieve your financial goal, is crucial when you plan to hold your investments and stick around the markets for a pretty long time.
No specific words can describe the time horizon precisely, although five years is often the minimum timeframe in a long-term investing strategy. But if you can aim longer, consider about ten or 25 years.
Time horizons such as those can provide your investment portfolio more chances to shoulder additional risk while potentially taking advantage of the benefits of higher returns that this may provide.
- A Strategy
You’re taking a shot in the dark if you’re investing with no specific direction of where you want to be or what you aim to achieve by participating in such a venture.
Excellent results can come out of those who invest with a target in mind and monitor their progress, according to studies. So once you set your time horizon and goal, you need an investment strategy that works for you and that you can stay committed to.
- Investing Style and Investment Vehicle
It’s also important to decide whether you’ll put in a considerable sum or invest regular, small amounts. You can start small, injecting your investment dollars a little at a time into a specific asset on a monthly or quarterly basis, regardless of the price during that time.
That way, you reduce the risk by ensuring you keep investing when the market is up or down, which is usually a good time to buy quality shares at discounted prices.
Moreover, such an approach can provide you time to familiarize yourself with the markets if you’re a beginner, allowing you to get used to the highs and lows of investing and learn to keep a level head should you see the market dips.
Once you’ve checked your goal, time horizon, approach to risk, and the securities or assets fitting your requirements off the list, you need to figure out the appropriate way to invest your money.
With do-it-yourself investors, there are several ways to do it. They can opt for an investing account with reliable platforms that support trading in stocks, funds, and a self-invested personal pension (SIPP) if necessary.
While it’s not important in the early stage of your investing, investment-related taxes, including income and capital gains tax, can be an issue you need to consider and anticipate.
- A Diverse Set of Assets
The stock market can register short-term sharp rises as well as sharp declines. Financial experts suggest adding a significant number of shares to an investment portfolio, regardless of your goals and while you have sufficient time.
Historically, investing in the stock market has led to excellent returns compared with other asset classes like cash and bonds.
Still, keep in mind that holding stocks or shares can leave you with less than what you started, especially over the short term.
In addition, other assets can help balance the risk and reward in your portfolio by moving in the opposite direction and offsetting some of the major moves observed in the markets.
Balancing assets such as bonds would be a valuable addition to your portfolio, particularly if you’re an investor who prefers to play it safe or simply have limited time to participate in the market. Furthermore, bonds are seen as a combination of cash’s security and quality assets like stocks.
Understanding the financial space, particularly the stock market, can be challenging and overwhelming at first for beginner traders.
So tricky that some first-time investors end up calling off their plans to invest, making them miss opportunities that might have them reaping excellent rewards in the long run.
Such an outcome can be avoided if you already have some solid investment foundations in the first place. That way, you can start on the right foot with developing your investing experience. You can start with something simple. Choose broad, budget-friendly investments and go from there.
Low-cost exchange-traded funds (ETFs) can help you achieve that simplicity. These investment vehicles provide a passive way to participate in the markets as they’re designed to mirror the performance of a certain index by holding all or most of the companies included in that index.
On the other hand, multi-asset funds can expose you to an expertly-managed diverse portfolio comprising multiple assets, such as equities and bonds, by only making a single investment.
- Reassessment and Rebalancing
While you’re already good with your investment strategy, you still need to check it from time to time and update your allocation if necessary.
However, you need to avoid reviewing your investments frequently as it may tempt you to make some decisions that are not exactly practical or smart. If you’re investing for the long term, short-term fluctuations should not be a concern for you.
Reviewing a portfolio annually is the ideal frequency. When you go over your portfolio, make sure that your allocations remain accurate to your goal. For instance, in soaring markets, particular stocks could rise past their expected range of the portfolio and need to be reduced.
If you don’t adjust your investments, you may find yourself shouldering more or less risk than you initially planned, which poses a risk in itself. That is why rebalancing is vital to any investing strategy.
You may also need to confirm whether your holdings are performing within their intended portion and whether the funds you own continue to trade according to their original philosophy.
Moreover, an annual review lets you see if there are changes to your situation. For example, a salary raise or a bonus can make you slightly raise your investments. Or your going outside regularly may have increased the need to cut back on your investment dollars.