Rather than constantly worrying about the daily global changes in sharemarket values and the attendant constant volatility, perhaps a smarter response for an investor is to go back to the basics of sound investment practice.
The prevailing investment environment underlines the value of ensuring that an investment portfolio is appropriately diversified in accordance with your personal circumstances – including your risk tolerance, your present and future needs and the investment timeframe.
Other investment basics for an investor to consider at all times, irrespective of what the markets are doing include:
- Regularly review your long-term asset allocation investment strategy and rebalance your portfolio to ensure it fits with your asset allocation
- Review your investment costs and research alternatives to ensure your costs are kept to a minimum. There is no need to pay for services that you don't use.
- Know the companies in which you invest. Don't have so many stocks that you can't keep up with what is happening in the companies.
- Remember that a dividend is the company paying you for the use of your money.
- Remember that a little and often does work. In investment terms this is called dollar-cost-averaging when you invest amounts at regular intervals so as to even out the costs of the stock. By buying regularly you can buy more stocks when the price is lower and less stocks when the price is high, so you average out the price and reduce the risk of investing large amounts before a price fall, and also reduce the risk of making an investment which is emotionally driven. Align this with a review in investment costs to ensure you have an optimal scenario.
What do successful long-term investors say?
- Patience is your friend
- When buying shares, think like a prospective owner of a business
- When making a stock market investment, if you don't plan on holding it for 10 years then don't waste more than 10 minutes considering it
- You don't need a lot if good investments, you need a few outstanding ones
- Keep investment costs to a minimum. This is one of the factors over which investors have much control.
- Practise dollar-cost-averaging. This involves investing regular amounts in the sharemarket at regular intervals. In this way, you buy more stocks when prices are lower and fewer stocks when prices are higher. You average your buying costs and reduce the risk of investing a large amount shortly before a fall in share prices.
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