A successful investor maximizes gain and minimizes loss through strategic financial planning.
Though there can be no guarantee that any investment strategy will be successful, and all investing involves risk, including the possible loss of principal, here are six basic principles that may help you invest more successfully.
1. Long-term compounding can help your nest egg grow.
It’s the “rolling snowball” effect: Compounding pays you earnings on your reinvested earnings. The longer you leave your money at work for you, the more exciting the numbers get. The compounded earnings of deferred tax dollars are the main reason experts recommend fully funding all tax-advantaged retirement accounts and plans available to you.
2. Endure short-term pain for long-term gain.
Riding out market volatility can be challenging. It’s important to remember that the longer you stay with a diversified portfolio of investments, the more likely you are to reduce your risk and improve your opportunities for gain. During any given economic turmoil, some asset categories and individual investments have been less volatile than others. You can minimize your risk by diversifying your holdings.
3. Spread your wealth through asset allocation.
Asset allocation is the process of spreading your dollars over several categories of investments. The three most common asset classes are stocks, bonds, and cash or cash alternatives. The mix of asset classes you own is a significant factor in determining your overall investment portfolio performance. In addition, dividing your investment dollars among asset classes that don’t respond to the same market forces at the same time also helps minimize the effects of market volatility.
4. Consider your time horizon in your investment choices.
Your investment choices should consider how soon you plan to use your money. For example, if you need money within the next one to three years, you may want to consider keeping it in a money market fund. On the other hand, if you have a long time horizon, you may be able to invest a more significant percentage in something that might have more dramatic price changes and greater potential for long-term growth.
5. Dollar-cost averaging: investing consistently and often.
Dollar-cost averaging is a method of accumulating shares of an investment by purchasing a fixed dollar amount at regularly scheduled intervals. When the price is high, your fixed-dollar investment buys less, but when prices are low, the same dollar investment buys more.
6. Buy and hold, don’t buy and forget.
Your portfolio’s long-term success depends on periodically reviewing it. Reviewing your portfolio is important because economic conditions change the prospects for particular investments or entire asset classes. Your circumstances change over time,
too, which influences when and what you invest. Your asset allocation will
need to reflect those changes! Many people choose a specific date each year to do an annual review.
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Investment vehicles made available through Horizon Trust & Investment Management are: Not deposits or other obligations of, or guaranteed by Horizon Bank; Not insured by the FDIC; Subject to investment risks, including possible loss of principal.