#1 Accept you won’t beat the market
Don’t try to beat the markets. There’s a huge amount of evidence proving that the majority of fund managers don’t win over the long term. Beating in the market for the long term by a fund manager is very difficult, however tracking the market is easy to do.
#2 Risk and Return are related
Investors hoping for high returns with low risk are usually delusional. If you want higher returns, you must take more risk. None of us likes to gamble with our savings, but the truth is there’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types of investment.
Diversifying your investments, which means spreading them around as much as possible, is a simple and sensible way of reducing risk. As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio underperforming. The key to diversifying – and successful investing in general – is to spread your money across different kinds of investments, called asset classes
#4 Keep your asset allocation correct
Most people choose from four main types of investment, known as ‘asset classes’:
• Shares - you buy a stake in a company• Cash – the savings you put in a bank account• Property – you invest in a physical building, whether commercial or residential• Fixed interest securities (also called bonds) - you loan your money to a company or government
There are other types of investments available too, including:
• Foreign currency• Collectibles, such as art and antiques• Commodities like oil, coffee, corn, rubber or gold•Contracts for difference, where you bet on shares gaining or losing value
The various assets owned by an investor are called a portfolio. As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio underperforming
#5 Lower your costs
Transparency is the key. Understand the cost of investments. A percentage point here or there may not sound very much. Small differences add up to large ones over time. Most investors are willing to pay for top performing funds, and most people assume the best managers command higher fees. But herein lies the paradox: paying a premium doesn't guarantee better performance, Investing is the one area in life where you don’t get what you pay for, as typically the more it costs, the less you get back. This cost can eat into the returns you’ll receive, and it’s something you should ask about before you invest.
#6 Control your emotions
Many investors divest from a fund after three consecutive years of bad returns. But patience is necessary to collect on the performance successful investments. Buying high and selling low is surprisingly, what lots of people do. You need to take emotion out of the process and invest for the long term. Being human makes it harder. That's why even the smartest people are affected by cognitive biases, especially when it comes to investing
Learn more about financial planning here.