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Investment Wisdom

Learning anew from the old

Investment wisdom is attained in a few different ways: the patient can acquire it through research, discussion, advice, and experience – much of which is learned through engagement with a qualified, experienced investment adviser. Investing for purpose is the start of developing an investment strategy from which success can be measured. During the recent COVID-19 pandemic, the inexperience of young entrants to the investment environment, showed an absence of wisdom, impatience, superficial research (usually on social media platforms/ posts), and with no real objective other than ‘to make money’ – and eventually conceded to the lessons of the University of Hard Knocks!

Teaching new, young investors, old tricks

The newest generation of investors is emerging from the Age of Information. Growing up alongside the internet, this generation has been exposed to more information and technological advancement than any generation before them.
Young investors have greater access to information about investing, more diverse opportunities for investing through new products such as ETFs, as well as a rise in social media content creators creating communities around building wealth. These factors all – make this topic much more popular among younger generations. However, the world of investing can still be intimidating, especially for young adults who are just starting out and have become addicted to instant gratification: they don’t react well to the negative aspects of market volatility early in their investment experience. While investing does involve risk, there are some time-tested, investment processes and strategies that all young (read ‘new’) investors can adopt to set themselves up for success:
1.  Know your financial goals
Before investing, it’s essential to know what you’re working towards (your purpose for investing).
  • Are you saving for a house deposit? (How much; and when do you want to be cashed up?)
  • Or are you building wealth so that you can retire early? (At what age; with what level of financial
    support; and where will you live?)
  • You may want to launch a business. (How soon? What capital will be required? Do you have a strategic plan for this?)
  • Or start a family? (When? How many? Education, health, housing, lifestyle considerations?)
Knowing your financial goals can help determine the best investment strategy for you. Make sure that they are SMART goals (as discussed in our online article ‘Money Management Matters’).
Once you have set your goals, you can develop a financial plan for achieving these through building cash flow by saving and investing.
2.  Start small and grow your investment portfolio over time
When starting, you might think you don’t have ‘enough’ to begin investing.
Starting small and gradually increasing your investment portfolio over time is a great way to begin. It allows you to learn the ropes and build your knowledge and confidence over time, without feeling like you have too much at stake.
Getting started sooner rather than later also means you’re taking advantage of the power of compounding returns. Compounding returns happen when you reinvest your investment earnings, allowing your investments to exponentially grow over time. The earlier you start investing, the more time your investments have to compound, leading to significant long-term growth. (See our Blog article ‘Wealth accumulation incrementally’ for more on this.)
3.  Diversify your investments
You might have heard the term ‘Don’t put all your eggs in one basket’, which, in the world of investing, translates to ‘Don’t put all your money in one type of investment’.
Diversifying your investments across different asset types, such as equities (stocks), fixed income (bonds), and cash (or cash equivalent), or money market instruments, is a key strategy that can be used to lower portfolio risk and provide more stable investment returns. These asset classes can cover a wide range of philosophical goals as well – investors with strong interest in the environment, social justice, moral issues, can all find investment products that they can support whilst investing.
Our Blog article ‘Investment portfolio diversification’ gives some more detail about investment asset characteristics to watch out for.
4.  Keep calm… and remember your investment plan
Investing should generally be viewed as a long-term strategy measured in months and years rather than days or hours, as markets respond to economic environments that are cyclical and go through periods of growth, decline, and stagnation.
This means that you will likely experience a market correction – sometimes, a significant correction – at some point in your investing journey, which can be a scary time for investors. It’s important to stay calm and avoid making impulsive investment decisions during these volatile market times. In the majority of cases, the best strategy during periods of extreme market volatility, is to stay the course and stick to your investment plan.
Further, market corrections can often present a great opportunity to invest as markets sell off and asset prices reduce. If you focus on assets that complement your strategy (or build on the portfolio selection made) to acquire during such downturns, your longer-term position will probably be enhanced. As Warren Buffet said: “Be fearful when others are greedy and greedy when others are fearful”. (…and see our Blog article ‘Investor mistakes during market volatility’ for more on this aspect.)
While investing may seem daunting at first, incorporating these fundamental strategies will pave the way for success.
A final tip… Seek expert guidance!
A financial adviser can help you set achievable financial goals, plan, and make informed investment decisions that will keep you on track toward helping you achieve your financial goals.
Don’t navigate the financial world alone – let your financial adviser be your partner in success!
ContinuumFP Aged Care service
Continuum Financial Planners has an experienced, accredited Aged Care Specialist available to work with you in planning your course(s) of action to prepare for the best financial outcome for the transition to accessing Aged Care services (including those strategic planning questions mentioned above), whether in-home or at a facility. You can contact us by phone (07-34213456), or by completing and submitting our online Contact Us form.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.