Mastering the Market
There is an undeniable allure of wanting to build long-term wealth and achieve financial independence. However, stepping up their game and rising above the ‘average’ can be challenging for many savvy investors. The combined effects of the latest financial news, market fluctuations and the temptation to invest in fleeting trends can all lead to frustration and suboptimal returns. Yet, for the investor willing to be disciplined and patient, outperforming the average becomes a very real and likely reality.
Here are the fundamental principles that will differentiate you from the investor pack by uncovering the importance of understanding and accepting volatility, the power of long-term investing, and ongoing learning.
Volatility as a Market Reality
Financial markets are characterised by periods of exponential growth punctuated by unexpected downturns. This risk makes the potential for returns so attractive. Yet, these fluctuations and the fear they instil can lead investors to make impulsive decisions.
Making better decisions around your money starts with realising that these ups and downs are part of a normal market cycle. History has shown that regardless of these ups and downs, the results are always positive. For investors who stay calm amidst market upheaval and who manage a diversified portfolio are more likely to reach the financial goals they set for themselves.
For investors, the recent news from the Reserve Bank of New Zealand stated that the nation’s financial system is in good health regardless of market uncertainties and changes to the regulation, a promising sign for those willing to take the advice.
Long-Term Focus
It’s uncommon for great wealth to be created instantly. Investing over months, years, and even decades at a steady pace will allow interest to work its magic. Short-term gains, though tempting, can lead to careless investment decisions.
Turn your attention from the now to the long term. Quick wins are precisely that and often cannot withstand market instabilities or deliver sustainable returns over time. Building a solid portfolio that can endure these setbacks will help you find growth and stability. As Ben Graham, “the father of value investing”, said: “The individual investor should act consistently as an investor and not as a speculator.” Nobody can predict the future, and decisions should be based on analysis, facts and patience, rather than risky, hypothetical predictions.
Resisting the Herd Mentality
It’s normal to follow what everyone else is doing, even when investing. Don’t fall prey to fads and the fear of missing out. This can spell disaster for investors wanting security in knowing their wealth will grow steadily. Due to these market rises and falls, the herd mentality can lead individuals to pile money into one thing rather than diversify their portfolio.
Successful investors scrutinise the trends and conduct their own research, analysing companies’ fundamentals to shape a clear investment plan based on their personal risk tolerance and financial objectives. Intelligent thinking means you can identify undervalued opportunities and avoid pitfalls.
Gain valuable insights and updates on market trends with the following:
- MBIE (Ministry of Business, Innovation and Employment)
- Simply Wall Street
- BusinessDesk
Dollar-Cost Averaging
Dollar-Cost Averaging strategy applies to setting aside a fixed amount of funds to invest regularly, regardless of market conditions. By making gradual investments, you can benefit from compound interest, ease the effects of market volatility, and see your returns grow over time.
Retail investors frequently use this approach in New Zealand to invest in managed funds, which offer several advantages such as:
- Uncalculated investment decisions are reduced, especially when considering short-term market changes. Even shrewd investors can benefit, as the need to time the market is eliminated.
- Consider DCA as a safeguard against market volatility. By investing consistently, you’re less exposed to the market’s ups and downs, leading to a smoother investment journey.
Continuous Learning
With new investment opportunities, strategies, and regulations constantly happening, the best way to stay ahead is to prioritise continuous learning. There are many resources to grow your financial knowledge, including educational guides, books, and articles written by famous investors, as well as subscribing to reputable financial newsletters. You may even be inspired to attend an investment seminar – all will guide and teach you about the best strategies to implement and how to achieve gradual growth.
Don’t hesitate to seek the advice of a financial advisor if needed. Investing is a journey; learning means you have the know-how to make sound financial decisions in a changing environment.
Here’s our list of the best investing resources:
- International news: The Economist and Forbes
- New Zealand business news: National Business Review
- Podcasts: We Study Billionaires, Invest Like the Best, and Intelligent Investor
- Newsletter subscription: InvestSMART Portfolio Manager
- Videos: Warren Buffett Archive and TED.com
- Blog: A Wealth of Common Sense by Ben Carson
- Books: The Psychology of Money by Morgan Housel and The Only Investment Guide You’ll Ever Need by Andrew Tobias
Investment Discipline
Sticking to your investment plan can be difficult, but maintaining discipline over the long run is crucial to reaching the monetary goals you set.
Avoid impromptu decisions and concentrate all your efforts on long-term objectives. This will safeguard you against costly errors and stifle the urge to stray from your original investment strategy.
Invest Smarter, Earn More
Becoming a better investor is about making informed decisions and staying on course.
But where do you begin?
MoneyShop offers a unique investment opportunity with returns starting from 8.25% p.a. We also prioritise investor security and have a 30-year track record of on-time payments.
See if MoneyShop is right for you:
Don’t let market volatility hold you back. Contact MoneyShop today to discuss your investment goals!
10 FAQs on How to Become a Better Investor
1. How do I Become a Better Investor?
- Continue learning, stay updated on the market trends (nationally and internationally), read economic news articles (Bloomberg and Business Desk NZ) and source new investing strategies online.
- Start small and with a small lump sum. Gradually increase your investment amount, then expand on the type of investments to include in your portfolio.
- Remember to spread your investments across different asset classes to reduce risk. Diversification is at the heart of investing.
- Patience is the name of the game, and investing is a long-term financial strategy. Stay on track in reaching your goals and avoid impulsive decisions that could negatively affect these goals and their timelines.
2. How to Invest 100k in NZ?
- Consider all your investment options. Explore shares, bonds, property, managed funds, peer-to-peer lending, and KiwiSaver.
- Consult a financial advisor who can help tailor your investment strategy to your unique goals.
- Divide your funds and allocate them wisely based on your risk tolerance and investment goals.
3. What is the Number 1 Thing You Want to Learn as an Investor?
Understanding how to assess and mitigate risks is crucial for successful investing. Another tip is comprehending basic financial concepts like compound interest, risk, and return.
4. Is There a Secret to Good Investing?
While there’s no guaranteed formula, discipline, patience, and continuous learning are essential in making wise financial and investment decisions, even during market fluctuations.
5. What is the Smartest Thing to Invest In?
The “smartest” investment depends on your individual circumstances, financial goals, and risk tolerance. Consider a mix of assets and diversify your portfolio.
6. How Can I Invest My Money Intelligently?
- Setting clear goals is essential in defining what you wish to achieve with your investments. For example, it may be for retirement, buying a home, or travelling.
- Knowing your risk tolerance is another crucial factor in determining how comfortable you are with market fluctuations and losses.
- A diversified portfolio allows you to spread your investments across different asset classes.
- Regularly review and rebalance. Create a budget to track your income and expenses to understand your spending habits better.
- Make sure to invest regularly and consistently contribute toward your investments, even during market downturns.
7. What Investment is Best for Beginners?
You may want to look at index funds and exchange-traded funds (ETFs). Index funds provide diversification and low fees, which are ideal for beginners, while ETFs provide exposure to several asset classes. Meanwhile, seasoned investors may pursue peer-to-peer lending, private equity, and real estate to grow their returns further.
8. How to Start Investing in NZ?
Here’s a breakdown of some popular options…
- KiwiSaver: A retirement savings scheme with government contributions.
- Property: Buying rental properties or investing in property funds.
- Bonds: Lending money to governments or corporations.
- Managed Funds: Professional fund managers invest your money on your behalf.
- Shares: Ownership in a company, offering potential capital gains and dividends.
- Exchange-Traded Funds (ETFs): Basket of securities that trade on an exchange.
- Peer-to-Peer Lending: Lending money directly to individuals or businesses through online platforms.
- Term Deposit: A savings account where you deposit money for a fixed term.
- Savings Account: A basic bank account that earns interest on your deposits.
9. What is the 50-30-20 Rule?
It is a budgeting guideline whereby you allocate 50% of your income to essentials, 30% to discretionary spending, and 20% towards your savings and investments.
10. What is the Best Advice for Investors?
Stay with your investment plan, and don’t fall victim to impulsive decision-making.
The earlier you start investing, the more time your money has to grow through compounding – so start as early as possible!
Look to the long-term goals rather than the short-term ones impacted by the market’s rise and fall.
Always invest in what you understand; otherwise, consider speaking with a financial advisor to guide you.
