Six ‘secrets’ to investing success

Marketing Manager - Sinclair Wilson

The investment world can change dramatically from one month to the next. But as Warrnambool’s investment experts, we can vouch for these secrets of successful investors never go out of style.

If you’re after long-term financial security, successful investing is a proven means to secure it. That said, unsuccessful investing can leave you wishing you’d simply kept your money in the bank.

So what’s the best way to make sure you succeed with your investing, rather than fail dismally?

There’s some tried-and-true tactics used by by successful investors around the world. We’ve shared six of them below.

1. Start with a plan

You know that saying, ‘failing to plan is planning to fail’? It’s an oldie. It’s even a bit annoying. But it’s spot-on.

Smart investors don’t just look for ‘good’ investments. They plan out first what they want the end result to be – then look for investments that will help them reach those destinations or goals.

Our Financial Planners know exactly how to do this in a way that will keep you focused on your end goal – and ensure the means and ways we get there are realistic and achievable.

2. Diversify widely

This one is about protecting yourself. One of the main goals of investing may be to ensure you have a mix of assets that are likely to perform well at different times – helping you survive any downturn in a specific market or industry sector.

While many Australian investors are heavily exposed to Australian shares, a well-diversified portfolio will generally hold assets in each of the major asset classes (e.g. Australian and international shares, property, fixed income and cash).

Again, our expert Financial Planners can make sure you have a suitably diverse investment portfolio.

3. Watch your costs

It’s easy to get fixated on the returns your investments can generate. But successful investors always keep track of, and seek to minimise, the fees and taxes associated with owning them.

A ‘buy and hold’ strategy can help you avoid transaction costs like brokerage, or buy and sell spreads from managed funds. It can also help you reduce capital gains tax, which generally decreases by 50% when you’ve held an asset for over 12 months.

4. Market Timing Risks

Attempting to time the market can be both difficult and dangerous to your portfolio. Market timing risks missing periods of strong performance, which can adversely impact a portfolio. Morningstar recently conducted a review of investment returns over 20 years, and determined that by being fully invested, investors generated a return of 8.7% p.a. However, the same investment that missed the top 10 returning days would have returned 6.1% p.a.

Despite periods of significant volatility on a daily basis, over the long term, investments in assets such as Australian Shares have generated strong returns.

5. Don’t panic

When share markets retreat (which they inevitably do), smart investors don’t hit the panic button and sell long-term investments based on short term volatility – this is made easier by following Step 1 –  “Start with a Plan”.

Instead, if you continue to invest during a market downturn, you may be able to buy high-quality investments at a lower price than you could if you waited for markets to recover.

Following the GFC, when the stock market bottomed in early 2009, many investors sold out of equities and held large proportions of cash in their portfolios. The opportunity cost of this decision has meant that some investors have missed a significant rally over the past decade.

6. Protect your assets

Even a carefully constructed investment strategy can come unstuck if you need access to your money in an emergency.

A smart strategy is to ensure you maintain a sizeable cash reserve, and put in place appropriate insurance such as income, TPD and life insurance. Having appropriate insurances in place can help prevent the need for a ‘fire sale’ of your investments if you suffer a serious illness or accident.

Tip: Income protection typically replaces up to 75% of your income if you can’t work due to an illness or accident.

If you would like more tips from our Financial Planners about ways to make the most from your investments, contact us today.

Written by Adam Smith, Principal – Wealth Management

Marketing Manager - Sinclair Wilson