These simple rules have stood the test of time when it comes to investing.
Avoid the temptation to run with the crowd: The crowd tends to get whipped into frenzy ahead of an earnings announcement, while investors buy based on their positive expectations. The theory of contrary opinion says that, “the crowd will always be wrong.”
Make it your action to buy when everyone is gloomy and sell when they are happy.
Look for the under-appreciated opportunities. Keep an eye on companies with low investor expectations headed into earnings.
Not investing at all. “If you wait for the perfect opportunity, you’ll never get anything done.” Most of us plan to start saving when we get that long awaited promotion.
Keep in mind that the longer you wait to start saving, the more you’ll have to save later in life to meet your financial goals. The cost of not investing can be enormous.
Let’s say you begin investing at 25, plan on retiring when you hit 65, and contributing Shs1 million in the first year with a moderate return of 10 per cent annual return. Forty years later, your wealth will have grown to more than Shs49,500,000.
But if you wait until you are 30, Shs1 million accumulates to only Shs33,000,000. Waiting just five years to invest cuts your nest egg by a whooping 40 percent. Given the math, it pays to start saving now.
Investing without a plan. Avoid a mismatch between your horizon and how you’re actually investing. Your investing strategy ought to be dictated by your profile.
If you are in your twenties to the late thirties, you are better off tilting your portfolio heavily in stocks. Since you are saving in the long haul, equities offer higher returns than bonds and at this age you have the time advantage on your side.
Looking for super phenomenal returns. When the deal is too good, think twice. The dreams of high returns usually go up in smoke with the principal amounts.
Failing to review your portfolio. By design, financial plans are supposed to be pretty low maintenance.
Donâ€™t waste precious time worrying about your holdings daily. But at the beginning of every year, spend time with your financial planner or adviser reviewing your portfolio.
Mr Theuri is an independent financial adviser with British American Asset Managers.