The investment of existing wealth
Before considering investments ask the following questions:
· What is my financial target?
· How may future market fluctuations affect my returns?
· How much risk am I willing to take?
· What is my investment horizon?
· Do I have the time, expertise and experience to manage my own portfolio?
The most common mistake people make is to buy investments without a clear strategy. A clearly defined plan to manage investments over the long term greatly increases the chance of success. The lack of a clear strategy leads to mistakes being made when investments do not perform as expected and investors don’t react appropriately. Negative emotions triggered by such events lead to people making wrong decisions and longer-term good investments are sold at a needless loss. Investments that should have been sold are retained and losses accumulate. Keeping emotions under control is one of the biggest challenges in investing. Working with an experienced advisor and a clear plan is likely to calm emotions and improve results over time.
Discipline is important for sustainable and successful wealth creation. Stick to your investment concept, diversify investments and add a savings plan to your lump sum investments as regular saving and lump-sum investments complement each other, especially in times of market volatility.
Doing so will allow you to benefit from opportunities in targeted markets, while reducing the volatility and risk of your overall portfolio.
A sound investment strategy might include one or more of the following:
- No single stock may exceed 10% of the portfolio
- No ETF or mutual fund may exceed 30% of the portfolio
- Each stock has a stop loss to reduce the risk of total loss
- If an investment gains more than 75%, 25% of this will be realized
- Always have 10 – 15% cash available to react if the market shows opportunities
- The portfolio is reviewed twice a year, not more frequently
There are many possibilities. The rules you set should be thought through carefully in advance with advice.
People often make the mistake of listening too much to family, friends or random strangers. Those people have different personal goals, return expectations and risk appetites. Before you implement a „hot tip“ from a friend, you should thoroughly check whether it complies with your long-term strategy.
Flexibility, security and a reasonable return are the important components of a good portfolio. Remember that the higher the equity ratio you choose, the higher your potential return, but be aware that the volatility of your portfolio will also be higher. Returns on interest and realized profits should always be reinvested to ensure your asset accumulation becomes professional and more effective thanks to the compound interest effect over time.
The greatest time and effort is always spent at the beginning of the portfolio building process. If you do this properly, follow your rules in the long term, and regularly check that your concept is being adhered to, there is little to stand in the way of sustainable success.
If you would like to create a portfolio or need help managing an existing one, please feel free to contact us. Our experienced advisors will help you create a personal investment guide that that you stick to for many years to come.