Outperform the Market: Your Guide to Becoming a Better Investor

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:

• Check minimum investment requirements

Don’t let market volatility hold you back. Contact MoneyShop today to discuss your investment goals!