INVESTING 101 – 7 STEPS TO INVEST SUCCESSFULLY: FROM A HIGH NET WORTH PORTFOLIO MANAGER

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Successful investing takes time and patience, it is not a get rich quick situation. Investing should be considered throughout different life cycles, the way you invest in your 30’s should be different than in your 60’s. Understand that with life’s changes, your investment portfolio should develop and grow to accommodate changing financial goals and circumstances.

Here are 7 basic steps to help guide you towards investing for a successful financial future:

1. Appreciate your personal risk tolerance and how that will change your long-term reward.

   Many factors go into evaluating an individual’s risk tolerance and this will change over time. The ability to take risk is based on your life cycle and personal circumstances. Having a longer time horizon to generate wealth in your early years of investing, usually results in the ability to take more risk. As you accomplish your financial goals and approach the later stages of life, risk tolerance should traditionally decrease. Your willingness to take risk is the more difficult factor to evaluate. This is very individualized and will have many factors built-in from your relationship with money to financial literacy. Willingness to take risk will also change throughout your life and is usually shaped through past experiences; both positive and negative.

2. Take advantage of compound interest.

   Albert Einstein was quoted saying that compound interest was the “eighth wonder of the world” and “he who understands it, earns it; he who doesn’t, pays for it.” Compound interest takes time, but it can have an exponential change on your wealth picture. The easiest way to take advantage of compound interest is to get started early. Investing a small amount regularly today in a properly constructed portfolio will benefit your future wealth picture.

3. Invest often.

   Develop a budget and stick to it throughout your career. As a rule of thumb, you should invest at least 10% of your gross income. Establishing an automatic withdrawal from every paycheck to an investment account is an excellent way to create a habit of saving for your financial goals. The benefit of investing often can also smooth out the ups and downs of the markets through dollar-cost averaging. Dollar-cost averaging is a bi-product of investing on a regular basis buying into the markets while they are moving up and down.

4. Build a diversified portfolio.

   Diversification is a simple concept to understand but difficult to implement. Usually, people invest in what they know, which may be the industry they work in as well. Because of this, we often see portfolios that are leveraged to an individual industry, along with their employment. If there is a downturn in their marketplace this not only affects their investment portfolio but their livelihood as well. “Don’t put all your eggs in one basket” is the basis of diversification. Building a portfolio that has exposure to different industries, geographies, even sizes of companies, will reduce the overall risk in the investment structure. In a diversified portfolio, some investments will outperform others during a certain time frame, then switch through different economic conditions.

5. Monitor your portfolio regularly and rebalance when needed.

   It is important to evaluate the risks and opportunities in your investment portfolio on a regular basis and rebalance the portfolio when needed. Rebalancing will help the portfolio stay diversified and sell positions that have increased in value and reallocate to ones that have decreased in value (selling high and buying low).

6. Align your investments with your financial goals and time horizons.

   Short-term and long-term financial goals should have different investment strategies attached to them. Decreasing risk in a portfolio for short-term goals will have more accessibility to the money when needed. On the other hand, increasing risk for long-term goals to maximize the return potential should be evaluated as well – assuming the individuals’ willingness to take risk is appropriate.

7. Manage your emotions.

   This is one of the most difficult things to manage when investing. Emotion is the worst enemy of an investor. Behavioural finance or the emotional aspect of investing can create major hurdles in being a successful investor. One way to reduce the risk of personal emotion in successful investing is hiring a professional to help manage your emotion in both good times and bad.

Please contact Tom Stachiw, or one of our other portfolio managers if you would like to discuss further. 

Click here to email Tom Buy our MATCO Funds today 

Tom Stachiw, CIM
Portfolio Manager
Local: +1-403-718-7792

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