by Chloe Cross, BMO –
A successful investment plan is built on solid fundamentals. The following strategies cover some of these essential elements and can help you avoid some of the common pitfalls of investing.
Define Your Goals and Create a Plan. Before you start putting your money to work, identify your financial needs and define your investment goals – this will help clarify what investment choices are most appropriate for you.
Start Investing Early. The sooner you start investing, the longer your money has to grow. If you invest $5,000 at the age of 25 with an annual growth rate of 8% at age 65 that investment will be worth $108,622. If you invested the same $5,000 at the age of 40 at the same 8% annual rate, it would only be worth $34,242 at age 65. This is the benefit of compounding growth.
Contribute Regularly. An easy way to save is to set up a Continuous Savings Plan (CSP) – this helps make investing a habit and benefit from dollar-cost averaging. You’ll automatically buy more units when prices go down and fewer units when prices go up – steadily building your portfolio without having to worry about the ups and downs in the market.
Choose Investments You Are Comfortable With. Some investors are intimidated by volatile markets and always choose the safest investment options. Others seek the highest attainable returns and are willing to assume the risk necessary to get those returns. It is very important to understand where you fit on the investment risk spectrum. Knowing this will help you make better investment choices.
Diversify Your Portfolio. There are many ways to reduce risk and increase your portfolio’s performance potential. You can diversify by the three main asset classes (equities, fixed income, and cash), by geographic regions, by industry sectors, and by investing in mutual funds whose managers employ different investment styles. How you diversify your portfolio depends on your investment objectives, your investment time horizon and your tolerance for risk.
Review Regularly. Major life events will likely change your spending habits and may affect your current investment strategy. So when your circumstances change, it makes sense to reconsider the content and structure of your investment portfolio. At a minimum, you should review your investment strategy with the help of an investment professional at least once a year.
Consolidate Your Investments. Keeping track of what’s happening and managing your investment diversification makes it easier to review your portfolio’s efficiency, saves time and involves less paperwork than trying to manage several accounts or plans.
Get Help from the Experts. The assistance of an investment professional that you trust is essential to helping you make the right
short-term and long-term investment decisions.