Take a long-term view. Over time, capital markets provide a positive rate of return. As an investor risking your capital, you have a right to the share of that wealth. But keep in mind, the return is not there every day, month or year.
Consider the drivers of returns. Differences in returns are explained by certain dimensions identified by academic research as pervasive, persistent and robust. So, it makes sense to build portfolios around these.
Practise smart diversification. A sound portfolio doesn't just capture reliable sources of expected return. It reduces unnecessary risks like holding too few stocks, sectors or countries. Diversification helps to overcome that.
Avoid market timing. You never know which markets the best performers from year to year will be. Being well diversified means you're positioned to capture the returns whenever and wherever they appear.
Manage your emotions. People who let their emotions dictate their decisions can end up buying at the top when greed is dominant and selling at the bottom when fear takes over. The alternative is to remain realistic.
Look beyond the headlines. The media is by necessity focused on the short term. This can give you a distorted impression of the market. Keep up with the news by all means, but you don't have to act on it.
Keep costs low. Day to day moves in the market are temporary, but costs are permanent. Over time, they can put a real dent in your wealth plans. That's why it makes sense to be mindful of fees and expenses.
Focus on what you can control. You have no control over the markets, but in consultation with advisor acting in your interests you can create a low-cost, diversified portfolio that matches your needs and risk tolerance.
That's the whole story in a nutshell. Investment is really not that complicated. In fact, the more complicated that people make it sound the more you should be sceptical.
The truth is markets are so competitive that you can save yourself much time, trouble and expense by letting them work for you.
That means structuring a portfolio across the broad dimensions of return, being mindful of cost and focusing on your own needs and circumstances, not what the media is trying to sell you.
* Glen Trillo is the Head of Wealth Management at Stewart Group, a family-owned independent financial planning and wealth management firm based in Hastings. Stewart Group works with individuals, families, and businesses in New Zealand who are committed to pursuing financial planning and wellbeing. Our clients understand the value of independent, goal oriented and objective financial advice that is free of conflicts. If that sounds like you, we would love to hear from you.
* The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.
