Investing is the act of allocating resources with the intention of generating wealth or appreciation. Investments can be categorized into traditional investments and alternative investments. Traditional investments involve putting capital into well-known assets that are sometimes referred to as public-market investments. Traditional Investments include equities, fixed income, and mutual funds/units funds. Alternative investments on the other hand are outside the conventional investment types.
The most common alternative investments today are real estate and private equity. The main goal of investing in the generation of good returns on your investment. However, this is not always the case as at times, an investor can incur losses on their investments. The losses may be due to bad investment decisions, unfavorable market conditions, among other factors.
Here are the techniques to improve one’s investment skills.
1. Know your investment strategy and goals
Before investing, it is important for one to know their short-term and long-term financial goals as well as their risk appetite. When you know how long you are investing for and what you hope to gain in the end, you can put an investment plan in place to achieve it. The best investments will be the ones you can live with in terms of risk and reward.
2. Training
Individuals beginning their journey in investments need to become numerate and learn the basics of investing. With the growth in technology, one can sharpen their investment skills through online classes/training at the comfort of their home. Key to note, the training is for education purposes only and it is advisable to consult a financial advisor before making decisions based on the contents of the training.
3. Research
Given the inability to predict market behavior and performance, research aids investors in gaining an insight into the movement of the market and as such, make informed decisions. Detailed and informed research can ensure that you effectively strike the balance between risk and reward while ensuring that you deal with assets and markets that suit your investment goal and underlying appetite for risk. This knowledge is crucial in helping one make better investment decisions.
4. Sharpen your analytical skills
When investing, it is essential to know how to assess the three tells of a productive asset i.e., the income statement, balance sheet, and the cash flow statement. Investors need to be able to analyze historical data in order to make informed decisions that will optimize their returns. Understanding how macro-economic trends, for instance, will impact your investments will positively influence your decision making in both the near term and long term,
5. Understand the market
By making oneself aware of the global financial market, one is able to make informed judgments on potential investment opportunities available. Investors have varying risk appetites, return expectations, and as such, understanding the market trends, helps in the alignment of one’s portfolio/investment. When you have a better understanding of how the market works, you will be much more likely to make great investing decisions.
6. Diversification and rebalancing one’s portfolio
Diversification is an investment strategy that mixes a wide range of investment asset classes in one’s portfolio. Diversification helps in cushioning the portfolio against market shocks. In case of an economic crisis, the operating environment and with most stocks trading in a bear market, most diversified portfolios are likely to be below their target allocation. As such, it is important for investors to rebalance their portfolio.
Rebalancing is the process where an investor restores their portfolio to its target allocation. It helps investors maintain their desired risk as well as their asset allocation. It is important to maintain a diversified portfolio as rebalancing your portfolio to ensure you are comfortable with your investment allocation in the various investment asset classes.
7. Be patient and do not take your investment failures personally
Given the volatility of the market, investors need to be patient and know that the investment journey may be typically a long one. To improve one’s skills, investors need to understand that investing will test you and wear you out and this is why it is important for investors to analyze their investment plans and decisions in the long-term. Key to note, when making an investment decision, more often than not, the market may prove you wrong and as such, it is important for investors to learn from their mistakes and try to learn from the choices they made that did not work out as anticipated.
Conclusion
Investing is a journey within which one has the potential to grow and as such, investors need to embrace and trust the process. Part of being a great investor is to be patient as you wait for your investment to grow. Reevaluating one’s assumptions and being aware of your own behavioral biases as well as developing one’s knowledge and skills even during times of market uncertainty is of importance.
