Making a powerful case for the buy-and-hold strategy
It's critical to identify behaviour biases, such a loss aversion and herd mentality, so investors don't debilitate a long-term portfolio strategy. View now >
The investment market can be difficult to navigate for beginner investors, but it remains an effective medium to help people grow wealth and achieve financial goals faster than traditional cash accounts.
However, delving into the market is not as simple as opening an account and waiting for the invested money to generate income. Financial independence and wealth creation both require investors to develop and employ appropriate strategies that could help achieve their financial objectives.
These strategies should ideally outline the investor’s time horizon, financial goals and risk tolerance which, in turn, could help them select appropriate investments. Investors should also take note that their objectives may as they go through various life stages and their investment strategies must also change with it.
“Strategy is ‘key’: why traders need to be ‘behavioural specialists’” is a good place to start for beginner investors because it discusses the usual behaviours that result in loss. Taking off from a podcast interview with Learn to Trade’s Adam Truelove, he pointed out that many investors know how to get in the trading scene but fail to recognise signs of when to take a step back—and this failure is rooted to their behaviour.
He explained that traders cannot really predict the direction of the market, but a knowledgeable investor who can analyse an investment’s past behaviour may be able to determine the emotions that drive market swings. That is, if the investor is able to observe similar circumstances in the market, they may be able to anticipate which way it will go based on how investors reacted in the past.
Mr Truelove also likened developing a solid strategy with consulting a roadmap instead of wandering aimlessly.
Investing for oneself is important but it’s often necessary to strategise finances for the estate, especially for investors who placed their assets and coursed their investments in a self-managed superannuation fund (SMSF).
One of the things they need to consider is how the changes in tax laws could play a part in decreasing their future retirement income. “Estate planning strategy could future-proof SMSFs from tax” suggests a technique that involves recontributing a retiree’s taxed income stream.
According to Heffron SMSF Solutions senior staff Meg Heffron, a recontribution strategy could help investors make the most out of the government-imposed $1.6 million transfer balance cap.
On the other hand, investors who are close to retirement or have recently retired may need to improve their portfolio for increased returns—especially if they still have money in an accumulation account.
“How can I optimise my investment strategy as I near retirement?” discusses what retirees typically need from their investment portfolio so that investors could take those needs into consideration. It also makes recommendations on what retired investors should look for in an investment manager.
Harvey Lane Asset Management’s chief investment officer and managing director Luke Cummins advises retired investors to ask managers two very important questions. The first is how fees are structured with their offered funds, and the second is if they invest in their own fund.
The two simple questions above should give investors an insight into how much the manager would take from their capital and how confident they are with the investment.
