IMPORTANT FACTORS FOR INVESTMENT SUCCESS
If you’re new to investments, it’s pretty easy to feel besieged. The factors of a sound investment may seem complicated, but here’s the truth: A lot can be achieved with clarity of purpose and proper management when making investment decisions.
Here are a few important factors for Investment Success:
#1 Your Investment Rate
The amount you invest is far and away from the most essential factor as you start investing. You’ll hear plenty of people advise and warn you to stay away from the stock market because you could lose your money.
Well, retirement researcher Wade Pfau says, your investment return over the first 10 years of investing accounts for less than 1% of your final outcome. This means, your early returns won’t have much of an impact on how much money you will end up within the long term.
This basically means you need not worry about your returns in the first decade of your investment life. So now the question is, how much should you invest? You can check out different calculators with a click, based on your investment goals, to help you figure it out. But irrespective of the suggestions, you can start with a small amount and gradually increase that amount over time. However you do it, focus first and foremost on the amount you invest regularly.
#2 Your Investment Instrument
Asset allocation has a big impact on your returns. Depending on the time horizon and financial goals, your big decision is how much of your money to put and on which investment vehicle. The more you put toward stocks, the higher your potential return, also the higher your risk, especially in the short term.
#3 How You Diversify
Diversification is another cliché that investment people like to bounce off. But all it really means is investing your money in different vehicles or funds instead of putting all your eggs in one basket.
Diversification of investment portfolio is important because it helps to reduce the investment risk without decreasing your expected returns. To explain it further, diversification means allocating your money into different instruments like FDs, Bonds, Equity, etc.
#4 What You Pay
In life, you can expect that higher quality comes at a higher price. But this doesn’t apply to investments.
To quote John Bogle, the founder of Vanguard “In investing, you get what you don’t pay for.” In investment, the best ways to increase your returns is to lower your costs.
#5 Stick to Your Plan
“Lethargy bordering on sloth remains the cornerstone of our investment style.”
— Warren Buffett
There will be times and temptations to buy or sell your funds or to change your investment strategy. Don’t give in to those temptations. You will end up. No matter what kind of craziness is happening around, stick to your investment strategy. Don’t let the news of the day, or temptation of the day, change your mind. The key to investment success is consistency.