Knowing your "investment time horizon," or when you need to start withdrawing a certain amount is key to determining which type of investments are the best match for your financial goals. Some investments may be too volatile for short periods; other types may not offer adequate long-term growth.
Sensitivity to risk differs from one to another: some fear losses; others fear missing the maximum return. However you react to the risk, you should be aware of your tolerance to it as it greatly influences what investments you choose.
Managing risk means more than just avoiding an investment loss. It also means outpacing inflation and being able to make gains. Risk arises from different factors – some controllable, some not – but risk can be managed. A well-constructed investment strategy can improve your ability to keep risk in check.
Your knowledge about investing may be limited or quite sophisticated. Towards defining your strategy, ask if you really understand what you're investing in, or if you have the knowledge update that would benefit from an Investment Advisor.
Your personal finances may be robust or average. You may owe money or be owed money, receiving a regular income or just faced with special expenses. Your personal financial cycle is critical to forming an effective investment strategy.
Some people hold deep values important before investing. Whether you invest primarily for the returns you're seeking or according to explicitly defined principles (religion; environment protection, etc.), it will affect where you invest.
When you invest you acquire a vehicle that necessarily changes in value over time. However, there are ways to influence, and control your investments performance through various portfolio management techniques. Here are some core concepts related to portfolio management that underline an effective investment strategy, regardless of your personal circumstances. Speak to National Bonds on how these and others apply to you and how you can make the most of them.
Asset allocation – how your investment portfolio is structured by investment type, duration, amount, etc. – is, as an authoritative investment industry source put it: "the primary determinant of returns." Selecting the right allocation of assets and adjusting them to changing conditions can put you on the right path to meeting your financial goals. It's also an important strategy for reducing risk.
Which Factor Most Influences Your Return?
Choosing a variety of investment vehicles with different performance characteristics to achieve a better overall return – is the essence of asset allocation. Diversification reduces fluctuations’ impact in the value of investments.
"Don't put all of your eggs in one basket”. This shows guidance on the practical implications of the role diversification plays in an investor's portfolio and offers no insight into how a diversified portfolio is actually created.
Whether the market is bullish or bearish, maintaining a diversified portfolio is essential to any long-term investment strategy. A diversification strategy can help you achieve more consistent returns over time and reduce your overall investment risk.