There are many similarities between winning in investment and winning in sports. If you are able to understand how strategies should be designed, you have a greater chance of success in both areas.
To succeed in both of these areas, you will need a game plan. There is no one game plan that works for everyone. To create the best sports plan, it is important to understand your team or individual strengths and weaknesses.
This is true for investments. It is important to know what level of risk you are willing to take, how long you can stick with the plan, and to be able to focus without getting distracted by gimmicks.
You need to have simple, reliable, sustainable, and intelligent strategies if you want to be successful in investing. These five strategies will help you stay focused on your investment goals.
1. Think of your strategies as a process
You are more likely to wing it if you don’t define your strategies as a process. You can avoid this from happening by having your strategies down pat.
It is recommended to create a flowchart of your investment strategies. This will show you how you will react to different market conditions.
It will help you to visualize and articulate it.
You should review it from time to time to ensure it aligns with your long-term financial goals. Your strategies are designed but not fixed. Be flexible to adapt to changing circumstances. You can adjust your strategies if you find flaws or financial goals change after a market experience.
2. Should you sell or hold?
This should allow you to make an objective decision about whether to sell or keep a stock. You will need two sets of objectives for each type of investment to monitor and react quickly.
- Targeted return (e.g. I would like to earn 10% per year by purchasing blue-chip stocks.
- A acceptable risk margin is the range of loss that you are willing to accept (this is your stop-loss goal, e.g. If you purchased a stock at RM8.00 you will wait until it drops to RM6.50 before you can exit.
These goals will prevent investors from falling prey to the problem of inaction.
You must know what you want before you invest. If you don’t have a plan, it is difficult to make sound decisions in a heated fight for exiting or waiting.
3. Measure the effectiveness of your investment strategies
How can you tell if your investment strategy works? Are you able to measure the effectiveness and efficiency of your investment strategy? You can only measure how effective your strategy is and make adjustments if necessary.
To measure the effectiveness and efficiency of your strategies, you can use relative or absolute benchmarks. Your financial objectives must be met by the benchmark you select, and then your investment strategies.
Absolute benchmark is a targeted investment return, such as 7% annually, and relative benchmark refers only to passive market indexes like FBMKLCI. Although it can be time-consuming and tedious, it is crucial that you assess the risk you take relative to the benchmark. Compare the volatility of the returns from your portfolio with that of the benchmark.
These benchmarks will help you avoid investing decisions that are influenced by emotions and rumours.
4. Set up a safety net for your investments
A common portfolio would include a mix of real estate, stock market and exchange traded funds. Bonds can be used to protect you from the volatility of the market if you are afraid of taking on too many risks.
The better the bond’s quality, the better it will protect against losses in the stock market.
Government bonds tend to be more conservative than corporate bonds and therefore yield lower returns. You can also choose to invest in unittrust funds or exchange traded funds for investment security.
5. Identify your investing amount
You can create a realistic plan for achieving your financial goals by identifying your investment amount, also called position sizing. If you are looking to make a large investment, position sizing will help you determine how much stock to purchase in a single trade and how much to invest.
Most investors don’t put enough thought into this. This can have a major impact on one’s investment performance.
First, you must set financial goals. Next, determine how much money you will need. Then work backwards to figure out how much and how to invest.
If your ultimate retirement fund is RM1,000,000 and you have thirty years to invest, then you would need to contribute RM600 each month. Your portfolio will need to consistently yield 7.5% annually, assuming that your initial investment was RM20,000. To achieve average returns of 7.5%, it is important to be able to determine how much you should invest in which investment product.
Each investor has a different set of goals when it comes to investing. This requires a unique set strategy. It is not wise to copy the investment strategies of your friends, relatives, or investment gurus. While you can learn from their strategies, you’ll need to create your own strategy that suits your goals and needs.
Saving money for a house is a short-term win. This means that you will need to be more cautious, while long-term goals, such as retirement, will require you to take in the market’s ups and downs, allowing you to be more aggressive.
Risk appetite, duration, and asset allocation are the three major determinants of any strategy. How you adjust these determinants to market performance will determine the success of your investment.