25 April 2016

How Should I Approach An Investment Strategy?

WHY you’re investing will impact HOW you invest.

You might be thinking that this article is all about which is better, shares or property, or some secret techniques to miraculously grow your investments. It’s not. The reality is that success in investing requires time and effort monitoring markets, making informed predictions of future trends and managing risk against return. There’s no secret formula – just hard work (be more than a little wary of anyone who is trying to tell you they do have a secret formula!)

No, this article is about WHY you are investing. Once you know what you want, the process of achieving it becomes immensely simpler. So what is the best way to ensure that your financial strategy is successful? How can you measure your strategy’s success? While you may think the answer is obvious – that your investments provide excellent returns and you end up with a great deal of money – you might be more successful if you start by thinking about what you really aspire to in life.

What – to you – would make your life successful? By considering these key milestones, you can then start to consider what it would take to achieve those aspirations, why those particular achievements would give you a feeling of success, and what priority you have for each of them.

Why take this approach? Because an open-ended goal like ‘making money’ doesn’t really have any emotional attachment to it, and you are unlikely to feel any drive to achieve it. Also, you can be left without ever attaining a real sense of achievement. How much is enough? When can you celebrate success? And with a lack of achievement comes a lack of dedication and focus.

So, how should you approach your investment strategy? Take the time to consider carefully exactly what you want out of life. What sort of lifestyle do you hope to have in retirement? What will it cost? Do you hope to travel? Where to? What sort of activities and what standard of accommodation do you want on the trip? What will that all cost?

Once you have established these aspirations and their cost, you can then organise them in order of priority, from ‘absolutely essential’ (enough to maintain financial independence throughout your retirement) to ‘that would be a nice bonus’ (a European sports car). This process will allow you to establish clear targets for the amount of money you want to save, and you may find yourself pleasantly surprised if some of your goals turn out to be less expensive than you anticipated.

All of a sudden you can see some light at the end of the tunnel – and you should also be able to take time out to enjoy reaching some short-term goals along the way. Now you can start working on the actual investment strategy you want to take – and setting those targets helps here as well. You are most likely aware that to achieve high returns you generally need to take greater risks. But what if your goals are such that you can achieve them without taking unnecessary risks? In that case you can target more conservative investments than if you are simply saving more and more and more with the vague aim of dying with a fat bank account.

So by carefully considering what it is that you want most in life and setting out a clear plan to achieve those dreams (rather than simply aiming to ‘make money’) you can maintain your focus more easily, look forward to both short and long-term success and undertake a more clearly defined investment strategy.