Investing is a long game. Whether you want to invest for retirement or grow your savings, when you put money to work in markets it’s best to set it and forget it. But successful long-term investing isn’t as simple as just throwing money at the stock market—here are seven tips to help you get a handle on long-term investing. 1. Get Your Finances in Order Before you can invest for the long term, you need to know how much money you have to invest. That means getting your finances in order. “Just like a doctor wouldn’t write you a prescription without diagnosing you first, an investment portfolio shouldn’t be recommended until a client has gone through a comprehensive financial planning process,” says Taylor Schulte, a San Diego-based certified financial planner (CFP) and host of the Stay Wealthy Podcast. Start by taking stock of your assets and debts, setting up a reasonable debt management plan and understanding how much you need to fully stock an emergency fund. Tackling these financial tasks first ensures that you’ll be able to put funds into long-term investments and not need to pull money out again for a while. Withdrawing funds early from long-term investments undercuts your goals, may force you to sell at a loss and can have potentially expensive tax implications. 2. Know Your Time Horizon Everyone has different investing goals: retirement, paying for your children’s college education, building up a home down payment. No matter what the goal, the key to all long-term investing is understanding your time horizon, or how many years before you need the money. Typically, long-term investing means five years or more, but there’s no firm definition. By understanding when you need the funds you’re investing, you will have a better sense of appropriate investments to choose and how much risk you should take on. For example, Derenda King, a CFP with Urban Wealth Management in El Segundo, Calif., suggests that if someone is investing in a college fund for a child who is 18 years away from being a student, they can afford to take on more risk. “They may be able to invest more aggressively because their portfolio has more time to recover from market volatility,” she says. 3. Pick a Strategy and Stick with It Once you’ve established your investing goals and time horizon, choose an investing strategy and stick with it. It may even be helpful to break your overall time horizon into narrower segments to guide your choice of asset allocation. Stacy Francis, president and CEO of Francis Financial in New York City, divvies long-term investing into three different buckets, based on the target date of your goal: five to 15 years away, 15 to 30 years away and more than 30 years away. The shortest timeline should be the most conservatively invested with, Francis suggests, a portfolio of 50% to 60% in stocks and the rest in bonds. The most aggressive could go up to 85% to 90% stocks. “It’s great to have guidelines,” Francis says. “But realistically, you have to do what’s right for you.” It’s especially important to choose a portfolio of assets you’re comfortable with, so that you can be sure to stick with your strategy, no matter what. “When there is a market downturn, there’s a lot of fear and anxiety as you see your portfolio tank,” Francis says. “But selling at that time and locking in losses is the worst thing you can do.” 4. Understand Investing Risks To avoid knee-jerk reactions to market dips, be sure you know the risks inherent in investing in different assets before you buy them. Stocks are typically considered riskier investments than bonds, for instance. That’s why Francis suggests trimming your stock allocation as you approach your goal. This way you can lock in some of your gains as you reach your deadline. But even within the category of stocks, some investments are riskier than others. For example, U.S. stocks are thought to be safer than stocks from countries with still-developing economies because of the usually greater economic and political uncertainties in those regions. Bonds can be less risky, but they’re not 100% safe. For example, corporate bonds are only as secure as the issuer’s bottom line. If the firm goes bankrupt, it may not be able to repay its debts, and bondholders would have to take the loss. To minimize this default risk, you should stick with investing in bonds from companies with high credit ratings. Assessing risk is not always as simple as looking at credit ratings, however. Investors must also consider their own risk tolerance, or how much risk they’re able to stomach. “It includes being able to watch the value of one’s investments going up and down without it impacting their ability to sleep at night,” King says. Even highly rated companies and bonds can underperform at certain points in time.
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Crypto is blowing up. No longer a niche tech field, now everyone is getting in on the action and trying out the world of crypto trading. It’s easy to both win money – if you know what you’re doing, as well as lose money – if you don’t!
If you’re keen to make it in the crypto market, we’ve rounded up some of the best ways to help you get there – if you do your research. 1. Day trading with lesser-known crypto appsTrading has come to the forefront with Gen Z. People with a little time on their hands and a little money have realized that they’re able to get involved in the exciting world of day trading. While traditional markets are more predictable and trickier to ‘play’ on, crypto is currently fairly volatile, making it a place where there is a higher risk – but also with the chance of higher reward. Some of the bigger names in the crypto market exchange game, such as Coinbase and Kraken, have gone down (offline) during periods of high trading. This means that you may not be able to sell or buy when you want to. This can have the effect of costing you thousands of dollars, depending on your strategy. By choosing a lesser-known app for crypto trading, you can hope to avoid any scalability issues that plague the larger providers when under high-stress traffic loads. 2. Mining new coinsPurchasing a mining rig for mining Bitcoin is going to be a loss-making exercise. The coin is now so popular and mature in the market that you won’t be able to make any Bitcoin as an individual player. However, this isn’t the case for new and upcoming coins. Each coin has a different mining technique, so may require different hardware to mine, and some coins can be mined simultaneously, depending on your setup. If you’re interested in becoming a miner so that you can win new coins, then it pays to do your research before splashing out on equipment. This research should be dedicated to what is trending for mining equipment for new coins, based on their mining algorithm, as well as trying to determine what will be a popular coin in the future. 3. Delegating your coins in a stake poolFor those who don’t want to invest in hardware for mining, there are also delegate stake pools. This is the basis of Cardano, aka the ADA coin. This is when you have more than a specific amount of ADA, you can ‘stake’ it in another provider’s stake pool – who does the mining for you while taking a bit off the top. This incentivizes people to both invest in the coin as well as build the community – while still growing your Cardano nest egg. There are other coins with similar structures so check out what’s on offer. I particularly favor Polkadot and Ethereum for staking purposes, and I recommend Kraken as a staking platform. 4. Running an in-person exchange with your friends and familyOne of the annoying things about crypto trading for the regular person on the street is the large fees that exchanges take for conversion from your Mastercard/Visa/bank deposit/etc. This can be a barrier to entry for many of your friends and family who’d otherwise like to get in and get some crypto. Instead, when you’re out and about with family and friends, you can offer to transfer them crypto in exchange for their cash, or splitting the dinner check, etc. If you don’t like using banks, this is a particularly attractive option. You can still take a little bit off the top – just make sure it’s less than the rate an exchange would charge. 5. Go in as an early-stage investor in a cryptocurrencyThis one is one that will require a larger amount of capital, to begin with, as well as a great deal of research. Early-stage investment, pre-ICO, is a way that you can get in early with a cryptocurrency and potentially make a huge amount of money. This also generally requires deep networking within the crypto community. You need to be on the ball, know when people are trying to launch new crypto, as well as understand their business model – and judge whether it’s going to be successful. You can start by following influencers in the space on Twitter, sparking conversations on Reddit, and going to conferences and other networking events. 6. A crypto-accepting businessAlready have a business or a business idea? Whether it’s cafes, a new successful bar, online marketing, or crypto betting and casinos, why not set it up to accept crypto payments? It’s fairly easy to allow customers to pay you in established cryptocurrencies. All you need is an address set up, and people can send through coins using your QR code or via the address field. The more crypto transactions you have going through your systems, the more you will be able to accumulate in your vault – for our next item on the list… 7. HODLHODL is shorthand for hold on for dear life! What this means in the crypto world is to sit on your crypto assets and wait. It’s a long-term strategy and what works best for established coins such as Bitcoin and Ethereum. While you can make a little bit in the short term you have the potential to make a lot more in the long term. Any money that you put into these longer-term investments needs to be something that you don’t touch. History shows that when people invest and stay invested, they're more likely to earn positive returns in the long run. When markets start to fluctuate, it may be tempting to make financial decisions in reaction to changes to your portfolio. But people who base their financial decisions on emotion often end up buying when the market is high and selling when prices are low. These investors ultimately have a harder time reaching their long-term financial goals.
How can you avoid making these common investing mistakes? Consider these investment strategies, which can help you reduce the risks associated with investing and potentially earn more consistent returns over time. Strategy 1: Asset allocation Appropriate asset allocation refers to the way you weight the investments in your portfolio to try to meet a specific objective — and it may be the single most important factor in the success of your portfolio. For instance, if your goal is to pursue growth, and you're willing to take on market risk to reach that goal, you may decide to place as much as 80% of your assets in stocks and as little as 20% in bonds. Before you decide how you'll divide the asset classes in your portfolio, make sure you know your investment timeframe and the possible risks and rewards of each asset class. Risks and rewards of major asset classesStocks
Strategy 2: Portfolio diversificationAsset allocation and portfolio diversification go hand in hand. Portfolio diversification is the process of selecting a variety of investments within each asset class to help reduce investment risk. Diversification across asset classes may also help lessen the impact of major market swings on your portfolio. How portfolio diversification worksIf you were to invest in the stock of just one company, you'd be taking on greater risk by relying solely on the performance of that company to grow your investment. This is known as "single-security risk" — the risk that your investment will fluctuate widely in value with the price of one holding. But if you instead buy stocks in 15 or 20 companies in several different industries, you can reduce the potential for a substantial loss. If the return on one investment is falling, the return on another may be rising, which may help offset the poor performer. Keep in mind, this doesn’t eliminate risk, and there is no guarantee against investment loss. Strategy 3: Dollar-cost averagingDollar-cost averaging is a disciplined investment strategy that can help smooth out the effects of market fluctuations in your portfolio. With this approach, you apply a specific dollar amount toward the purchase of stocks, bonds and/or mutual funds on a regular basis. As a result, you purchase more shares when prices are low and fewer shares when prices are high. Over time, the average cost of your shares will usually be lower than the average price of those shares. And because this strategy is systematic, it can help you avoid making emotional investment decisions. We’ve all been in those meetings when ideas for stimulating growth get tossed around. Before you know it, an entirely new growth strategy has emerged and everyone’s moving full speed ahead in hopes of seeing benefits sooner. There’s just one problem: by letting excitement take over, firms often don’t take the time to analyze risks and determine how likely a new growth strategy is to truly be successful.
However, there are a few strategies for growing a company that have been proven to work, time and time again. While every approach has some amount of risk, these strategies can deliver new growth without making dramatic changes to your process. Depending on your situation, one strategy may be a better fit for your firm than another. Below are five of the most common growth strategies. Let’s go through them one by one, from lowest to highest risk: 1. Increase Market Penetration This approach involves offering more services to the same client. Since it doesn’t require introducing anything new, it’s a relatively low-risk strategy that can be achieved fairly easily. For instance, let’s say your accounting firm offers auditing services, but few of your clients know about it. By making your current clients aware of your other services, your firm can increase your relevance and get more revenue from a market you’ve already tapped. Now, it’s important to note that even this conservative growth strategy isn’t without risk. When you depend on a small pool of clients, you can’t afford to lose many of them. Further, convincing your clients to buy additional services can be an uphill battle. As we discovered in our research for our book Inside the Buyer’s Brain, most clients aren’t aware of a provider full range of services. In other words, clients have a tendency to seek out other providers for additional services — service that you offer — because in their minds they don’t associate those services with your firm. 2. Develop New Markets Another relatively low-risk strategy involves finding new markets for your existing services. This is a common growth strategy in the professional services industry, as many firms seek to roll out their services to as many audiences as possible. While the concept of “more buyers equals more sales” might seem logical, it has its potential costs, too. It can be time-consuming and costly to educate and nurture new audiences, so your firm runs the risk of underinvesting in potentially valuable markets while overinvesting in those with less opportunity. If you aren’t careful, this approach can dilute your brand and any industry specialization you may have developed. However, if you approach new markets thoughtfully, this growth strategy can be quite effective. For example, if your law firm currently caters to small businesses, but a new Fortune 500 manufacturing firm is relocating to your area, a large corporate client could be a beneficial growth opportunity. 3. Develop Alternative Distribution Channels While this strategy is less common in professional services, it can still be effective. By partnering with complementary — but non-competitive — service firms, your firm can widen your reach by leveraging alternative distribution channels. For instance, a firm might partner with a trade association to gain access to their membership. Or a law firm partner might partner with with an accounting firm to exchange referrals and even market together. Because this strategy is fairly rare in the professional services, the biggest risk involves finding the right fit. Developing alternative channels can be costly, so it’s important to consider whether it’s worth the investment — particularly since choosing an alternative distribution channel can damage your brand if it raises credibility issues. 4. Develop New Services In this strategy, your firm develops an entirely new service to address an underserved market. In a way, most professional services firms do this already. After all, no two clients have the same needs, so they customize their services to the particulars of a client’s situation. But as a market strategy, a firm has to think larger. For instance, an accounting firm might look beyond its traditional tax offering to offer a new service offering — internet security services or financial planning, for example. Despite its potential to generate significant growth, this strategy comes with a number of risks. For one, developing a new service requires a substantial time investment, which can divert critical attention from the services you already offer. By broadening your service line, your firm also risks becoming a jack-of-all-trades — a generalist that stands for nothing in particular. Further, it’s important to make sure that any new services fit your brand, don’t cause a conflict of interest, and don’t alienate your referral sources. They should fit naturally into your current portfolio of services so clients and prospects feel confident in your ability to deliver. 5. New Services to New Markets Rounding out our list is the riskiest growth strategy of all: offering new services to new markets. In addition to the challenge of developing new services, this strategy also involves cultivating a new market. In order to justify the associated risks, the potential opportunity must be substantial. In some cases, this strategy can be hugely successful. Take one of our clients in the consumer market research field, for example. They had developed a software platform to serve their already-diverse client base. Then they discovered that the software platform could also address a specific problem in the medical research field. They decided to create a new firm catering to medical researchers — which allowed them to take advantage of the opportunity without muddying their brand and confusing their current client base. SOURCE What's an investment strategy?
An investment strategy is a way of thinking that shapes how you select the investments in your portfolio. The best strategies should help you meet your financial goals and grow your wealth while maintaining a level of risk that lets you sleep at night. The strategy you choose may influence everything from what types of assets you have to how you approach buying and selling those assets. If you're ready to start investing, a good rule of thumb is to ask yourself some basic questions: What are your goals? How much time until you retire? How comfortable are you with risk? Do you know how much you want to invest in stocks, bonds or an alternative? This is where investment strategies come into play.Key take aways
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April 2022
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