By Ben Hobson, Markets Editor, Stockopedia
Read the financial headlines and it would be easy to believe that an investment fortune can be made with just one trade.
While it’s true that some people do get lucky with one “magic” stock during their investment journey, most successful investors build their personal wealth and security over the long term.
Investing is mostly a waiting game. Sticking to a predetermined strategy is key to success in this field – while not letting emotions compromise your judgement.
In the modern age of investing, this isn’t easy. New and experienced investors are being bombarded with more information and ideas than ever before. But in all this noise comes the increased risk of mistakes and misinformation – making the idea of getting quick money sound all the more tempting.
That’s why Ben Hobson, Markets Editor at Stockopedia shares his insights on how to manage your portfolio for the long run.
Have a plan
Investment strategies naturally change over time and making mistakes is unavoidable as markets fluctuate.
Understanding the risks ahead of time and looking at the bigger picture can help you manage the highs and lows so that you stay committed for the long term.
Not only will this give you confidence, but it will help you manage the fear of loss that can lead some investors to throw in the towel.
Everyone is guilty of dipping into savings to fit their needs – whether it be for a treat or a surprise expense – but it’s vital to know precisely how much you’re willing to invest.
For the most part, the longer you remain invested, the more you’re likely to benefit from compounding returns over time. So, being confident that you can afford the amount you have invested today, and in the years that follow, is paramount.
A strategic stance
Investors and investment strategies are all different and investing advice takes many forms and can seem confusing to those starting out. Yet the historical drivers of stock market profits are surprisingly consistent.
Keep it simple and create a strategy around the three factors that many professional investors focus on – Quality, Value and Momentum. This way, you’re aligning with factors that have historically driven the strongest performances in the stock market over time.
Remember that high profitability and cash flows are markers of a strong business and are likely worth looking at. Be vigilant of low or no profits, thin margins, debt and precarious balance sheets – businesses with these are usually worth avoiding.
Valuation is vital when choosing a stock. Unloved shares that can be bought for a snip may offer supersized returns. But paying a fair price for higher quality or promising growth is just as viable.
Finally, looking at trends and history can help you gauge a stock’s performance. Positive momentum is one of the most significant return drivers in investing. Share prices that are rising strongly often continue to do so.
The perfect all-weather portfolio
Stocks, sectors and markets move in their own cycles. When one zigs, the other zags, so think about the roles that each investment type plays in your portfolio and how many positions you feel comfortable with managing.
Any investor worth their salt would recommend spreading out finances across a range of investment types and trying out different strategies.
Diversification between different market-cap sizes, investment styles, industry sectors and even international geographies can protect you from being too exposed to unnecessary risks and can smooth out your investment returns over time.
For example, having your money invested in funds and bonds can be less risky than a volatile stock, but having both could help limit losses and increase the chances of a positive return.
Keeping a balance
When your portfolio is in place, understanding where to prioritise your attention lets you rest easy at night rather than fretting over small changes.
One or two big winners can quickly dominate your allocation, but those big winners can also be life changing.
Don’t get too caught up in your portfolio performance – you need to let your investments breathe. If anything, getting too caught up in the losses can make you miss an uptick in value around the corner.
Overtrading can not only fuel emotional investing, but fees and charges can quickly mount. Trading fees all chip away at your portfolio, so avoid throwing money at unnecessary trades – especially when you’re bored.