Many investors have an idea of what constitutes investing success for them personally, but not every investor has a defined set of goals driving their investment decisions. Defining your investment objectives and how to achieve them is a critical step to lay the groundwork for successful investing. Without articulating your goals and a plan to meet them, you may be distracted by various investment ideas or fads that might not form a cohesive investment strategy and may not help you reach your goals.
Some investors may pursue “hot” or popular investment ideas that may not be appropriate for their needs, and others may pursue investment ideas that are not at the appropriate level of risk for their circumstances. If you invest based on recommendations from friends, the media or a financial firm, be wary of any investment product or strategy promising unrealistically high growth or guaranteeing both capital preservation and growth. There are no risk-free shortcuts to high returns. Investing success requires discipline, careful planning and a thorough investigation of suitable investment options to meet your investing goals.
For many people, retirement is a time to relax, spend time with family and enjoy their later years. Investors may save and invest throughout their working life to fund the retirement they envision. However, for many people, achieving sufficient retirement wealth requires detailed planning and investing discipline, which can be a challenging process.
Relying on income from a single pension fund to pay for retirement may not be the best way to achieve your retirement needs and goals, and you may need to explore other potential options for retirement income. One option is to draw retirement funds from an investment account or other savings you have accumulated over the years. Within that portfolio, you may need to make some critical decisions regarding how you invest those funds. Humans sometimes look for easy answers to difficult questions. However, when it comes to your investment options, these decisions are not always easy and many people lack the commitment to stick with their optimal investment strategy.
Some retail investors may fall prey to investing ideas promising unrealistically high growth or guaranteed capital preservation and growth—which is impossible, as true capital preservation requires investments to keep pace with inflation, and growth beyond that requires risk. These ideas may seem especially appealing during volatile times in the stock market. However, these kinds of investing ideas may not be right for your investing strategy and could cause you to make emotional or reactionary decisions that hurt your portfolio’s returns. We believe investors should be critical of the latest and greatest fund or investment opportunity without doing the background research first.
If you are going to give yourself the best possible chance of achieving your goals, you need to have a thorough plan in place, be prepared to invest with discipline and have realistic expectations for earnings growth.
Your financial adviser should be able to help identify the equities, funds, fixed interest securities or other options that will suit your objectives and individual circumstances. They should also be able to help you stay disciplined whenever you feel like making emotional decisions based on market price fluctuations or if you wish to invest in "too-good-to-be-true" investment ideas.
Without defining your investing goals—whether for retirement or something else—you may struggle to even begin considering your options. Depending on your situation, your goals will likely fall into one of the following categories:
Identifying your investment time horizon—how long you will need your investments to last—is an essential part of working out whether your investment strategy is optimal for your situation and goals. When evaluating your investment time horizon, keep in mind that you could potentially live longer than average life expectancies. Your investments need to last throughout your entire investment time horizon. If you end up living longer than expected, will your investments still be able to provide for you? With ongoing medical advancements, you may live longer than you currently expect, so it’s important to plan now on how you will achieve your investment goals to provide throughout a potentially lengthy retirement.
Planning for the potential impact of inflation is another important part of the planning process. As inflation rises, it can have a significant impact on your portfolio’s purchasing power. Over time, this effect can eat into your purchasing power. When choosing your investment options, keep in mind the impact that inflation could have.
Risk is an inherent part of any investment option. To achieve the level of growth you desire, you may need to accept some form of investment risk or market volatility. It can be tough to endure market fluctuations on a day-to-day basis, especially during periods of greater volatility. However, when considering risk, remember market volatility is only one type of risk. Other risks may include concentration risk—holding too much of a single company or area of the market—or the risk of not meeting your goals if you don’t achieve enough long-term investment growth. Engaging in behaviors such as trying to time the market or taking unnecessary risks with fad investment ideas may lead to excessive risk and may put your funds in jeopardy.
Discipline is a critical component to successful investing. By avoiding illogical or irrational market decisions, investors may be more likely to achieve their goals. Abandoning course mid-plan could inhibit your ability to meet your goals and might increase the chance that you run out of money before the end of your investment time horizon.
Remember, the need for discipline is not exclusive to times of negative trends. It also applies to the times when investors may be tempted to chase the heat of trendy funds or to focus their investments in specific popular equities and other securities. This approach may lead investors to buy high when a security is overhyped and then sell low if reality does not meet investor expectations. Mistiming markets can have negative effects on portfolios. Investor discipline and a diversified, risk-managed investing approach can help you trump emotional and short-sighted trading urges.
Even experienced investors sometimes make mistakes. Taking the time to assess and plan your retirement goals can help set you on the right path for successful investing, whilst ongoing advice, research and education can help you stay disciplined in order to give you the best chance of reaching your objectives.
A trusted adviser and financial planner can help keep you disciplined whilst investing so that you can avoid potentially misleading fad investment ideas and trends. If you need assistance choosing investment options, or need help understanding what you are currently invested in, contact us today or download one of our educational investing guides as the first of our ongoing insights to learn more.
Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.