Six Steps for Successful Investing
Kim Ciccarelli Kantor | Naples Daily News | September 18, 2013
Investing is not only about money. It is mostly about a frame of mind that gives you the focus you need to be a successful investor.
A task often mistaken for success is the selection of a particular stock, rather than the fact that you choose to buy stocks. Successful investing requires a disciplined approach to decision making. It’s about proper planning and sticking to that plan.
The right mindset, combined with the appropriate knowledge, can help enable you to become a successful investor. Follow these six basic steps to help you on your road.
First, define your objectives. Your primary financial goal will lend a hand in shaping your portfolio.
Second, design your asset allocation, with the first task in portfolio construction to determine your risk tolerance levels. Asset classes such as stocks, bonds, cash, real estate and foreign investments are not equal in volatility and performance.
Third, evaluate your need to diversify. Be diversified in your portfolio selections in accordance with your tolerance for risk and volatility. Over-weighting in any one area can add more volatility to your portfolio and may not reward you accordingly. A diversified portfolio should, at the very least, carry weightings in large cap growth and value stocks, small/mid cap growth and value stocks, fixed equivalents and foreign investments.
Fourth, take time for review. Success in reaching your objectives may depend on how much time you spend in honest evaluation. Answer questions that describe your objectives. Are you seeking preservation of principal and a moderate amount of current income? Do you need income, or do you want growth?
Five years from now, what do you expect your standard of living to be – the same, somewhat better, or substantially better than now? Do you envision your investment portfolio to be worth the same or a little more than it is today, moderately greater than it is today, or substantially better? Be honest with your answers. This self-reflection is really important.
Fifth, decide what to do with the income generated by your investments. The choices might include receiving all the income, receiving some and reinvesting some, or reinvesting it all because a need for current income does not exist. How do you feel about the long-term prospects for the economy? Are you pessimistic, unsure, somewhat optimistic or very optimistic? Certainly, your view impacts the direction you set for future investing.
Sixth, be realistic when setting a time frame for achieving your goals. Do you need your portfolio within 5 years, 10 years, 15 years, or beyond? A common failing is not matching investment selections with the proper time horizon. For example, placing assets needed within three years into stocks could backfire if the economy is not robust during that time.
Do you have the right mindset for investing? If your portfolio value suddenly declined by 15% (or by 50%) would you: Be very concerned because you cannot accept a fluctuating portfolio? Be unconcerned if income you were receiving was unaffected? Be wary, but know that you are invested for the long term? Or, would you be unconcerned because it’s part of long-term investing?
A proper mindset, combined with a disciplined approach in portfolio design, will greatly enhance your opportunities for becoming and remaining a successful investor.
