Is this the year you’re finally going to take the big leap into investing? If so, where and how do you begin? An overview of some of the leading investment experts’ predictions for the coming year might be helpful, as might a closer look at some commonsense investment strategies. In the end, of course, it’s up to you to decide – preferably with the help of a qualified professional who can guide you in the right direction.
Predictions of market performance run the gamut
Naturally, however, you need to take all prognostications with the proverbial grain of salt, keeping in mind billionaire investor Warren Buffet’s assessment of stock market forecasters, whose primary value, he says, “is to make fortune-tellers look good”. This is particularly true with short-term market forecasters, he said, adding that short-term market forecasts “are poison and should be kept locked up in a safe place, away from children and also from grownups who behave in the market like children.”
While it might seem more logical to follow the recommendations of large, established banks, research by the spread betting firm Intratrader led the firm to conclude that forecasts made by the large investment banks are correct only slightly more than half the time, which is marginally better than flipping a coin. According to Intratrader’s study, investors who followed the investment banks’ recommendations and bought and sold according to the banks’ recommendation on the short term – typically 30 days or less – made an average gain of just 0.8 percent. If the investor hung onto the recommended investment for 90 days, they suffered an average loss of 1.48%. And if they followed the recommendation of the banking “experts” and stuck with the recommended investment for over a year, they lost an average of 4.79 percent on their investment. That coin flip is starting to look better and better.
But even in a volatile and uncertain market, some investors are clearly doing something right.
One successful investor weighs in
Face it; every investor’s situation is different, and what works perfectly for one investor might well prove disastrous for another. Each individual needs to determine what his or her investment goals are, and balance those goals with other factors, chief among them being how much risk one is comfortable with – in short, how much he or she is comfortable gambling to maximise earnings. While all investing comes with a degree of risk, maintaining a balance of risk versus reward goes a long way toward ensuring that one’s savings pot grows enough to beat the cost of inflation over the long term.
You may find it helpful to look more closely at the comprehensive investment strategy of one apparently successful investor who is working towards making a million in the market. That strategy is working well for him because it provides a mix of stability, dividends, and capital growth. The four major elements of the strategy are as follows:
Diversify – The old adage not to keep all your eggs in one basket is particularly applicable to investing. Diversity means not merely spreading your investment across multiple stocks, but across different market sectors and geographic regions, while avoiding too much exposure to the volatility of equities markets. Proper diversification allows you to take advantage of the strengths of different investments, without assuming too much risk in the process.
Maintain a level of available cash – Even in the face of dramatic swings in different markets, cash seems to remain less volatile. And having cash available can allow you not only to weather economic storms, but can also leave you capable of taking advantage of time-limited investment opportunities, such as the purchase of stock in a good company that is suffering a temporary dip in value.
Invest in solid companies – Rather than focus on the most exciting companies when looking for the best place to invest, look for companies with steady, reliable returns, and buy when the stock price is experiencing a temporary dip. You may have little interest in the products or services the company provides, focusing instead upon the reliability of their financial performance. For example, you shouldn’t invest in a restaurant because you like the food. Invest in a business that has a stable earnings track record, rather than one that is touted as the next big thing, which is just as likely to be the next big disappointment.
Whether you intend to become a millionaire in the market, or you just want steady returns to help you with living expenses and retirement, you need to find your own best mix that will help you reach your financial goals.
Proper guidance is key
As is the case with all of the posts on this blog, none of the above is intended to replace the guidance of a properly credentialed and qualified expert. We recommend that you do not make any significant decisions about investments or any other financial matter without the appropriate guidance.
There are many different types of financial advisors, and choosing the best one can be a little bewildering. But if you know what to look for in a financial advisor and you know which questions to ask, you’re much more likely to choose someone who can give you sound advice and help you on your way to a stable, secure and even prosperous future.
This doesn’t mean that you can’t do anything on your own, of course. And since you know yourself and your situation better than even the most astute financial advisor, it’s only fitting that you ultimately be the one to decide what you are going to do with your money. After all, no advisor is perfect, and as indicated above, even the experts can be profoundly wrong.
But the fact remains that 100 percent DIY investing is only for people who really know what they’re doing, and if that’s not you, then some level of professional advice is in order. The rewards of investing can be significant, and we hope they are for you, but you have to be prepared for the risks as well.