Six Tried-and-True Principles for Any Investor
As investors, it's important that we never stop learning because markets never stop changing. But having a firm grasp of some investing fundamentals can help you set realistic goals and stick to your financial plan.
The professionals at Allianz Global Investors have compiled this set of time-tested investing principals which they've used to guide their success:
1. Keep a Long-Term ViewKeep in mind the historical returns of different asset classes when setting your financial goals. Treat any outperformance as a bonus. Remember — time is your ally! By focusing on long-term results, you'll find it easier to ride out short-term volatility.
2. Be DisciplinedOften the most successful portfolio managers are those that follow a proven investment process. The key is that they choose an investment discipline and adhere to it. By establishing a clear financial plan, you'll have a logical framework for your own financial decisions.
3. Invest ResponsiblyDefine your objectives and risk tolerance, and consider them hard-and-fast parameters. While making big bets can sometimes reap big rewards, they often lead to steep losses instead. Smart portfolio managers always seek to optimize the balance between risk and reward.
4. Understand What You Invest InIf you can't explain in simple terms why you're investing in a particular security, you should rethink the investment. And you should always have a clear understanding of any risks involved. Your financial advisor should prove an invaluable resource along these lines.
5. Stay DiversifiedNo one can predict the next top-performing asset class. That's why the importance of asset allocation is virtually undisputed. To achieve broad diversification, you should invest your assets across different sectors and industries as well as different asset classes. Remember to periodically rebalance to target the proper mix. Keep in mind that diversification does not ensure a profit or protect against loss in declining markets.
6. Know the Value of Professional AdviceAn increasingly complex investment climate has made it challenging for investors to try to go it alone. That's why more and more investors are turning to professional management. A financial advisor can also help you construct a solid financial plan, make sound investment choices and guide you through times of volatility.
Review these six principles with your financial advisor, who can help you establish your own, personal investment approach.
Past performance is no guarantee of future results. Diversification does not ensure against loss. This is not an offer or solicitation for the purchase or sale of any financial instrument. It is presented only to provide information on investment strategies and opportunities. The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate.
A Word About Risk: Stocks have tended to be volatile, involve risk to principal and, unlike bonds, do not offer a fixed rate of return. Bonds involve a fixed rate of return if held to maturity, but fluctuate in value in response to changes in interest rates. They are likely to decrease in value when interest rates rise. Bonds are subject to the credit risk of the issuer.
The Standard & Poor's 500 Composite Index (S&P 500) is an unmanaged index that is generally representative of the U.S. stock market. The Barclays U.S. Aggregate Index is composed of securities from the Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index. It is generally considered to be representative of the domestic, investment-grade, fixed-rate, taxable bond market. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an index.