Smartvestments 8: Get Familiar with these Must-Know Facts About Investing

Are you planning to start investing or expanding your existing portfolio? It can get overwhelming at times. Many people have navigated the same waters, made their way through thick and thin, war and peace, key life events, and even the COVID-19 pandemic. With discipline and patience, you can join those in the top echelons in investing.

Here are six critical facts you need to know as you take the bold step of investing and head towards a better financial future.

#1 The Power of Compounding

You most likely have heard about compounding, but it is time that you genuinely consider it a critical factor that should inform your behavior and help you reorder your priorities. The earlier you start investing, the sooner you can earn a significant profit. It all lies in compound returns.

For instance, an 18-year-old who gets a job and starts saving about $5000 per annum right away, getting a long-term average rate of return, can retire with well over $4,000,000. By contrast, a 38-year-old would need to save over $36,000.000 per annum to retire with the same amount. It all comes down to the time value for money and the power of compounding.

#2 Your Portfolio Should Be Designed to Meet your Unique Life Needs

Some people often get too emotionally attached to their investments, methods, or certain companies. This comes with the risk of losing objectivity or the original goal of an investment.

Try to employ critical thinking if you see pitches such as:

• “The only crypto you’ll ever need to invest in.”
• “Buy these stocks. And forget about everything else.”
• “Buy now, or forever live in regrets.”

Keep your focus on what’s important. Stick to your personal goals, objectives, risk averseness, tax bracket and disposable income.

As such, your investment path should represent an extension of your personality and unique financial ability and potential.

#3 Drops in Market Value Reality Checks

The prices of assets are always on the move. Some of the movements are triggered by microeconomic factors, while others are entirely irrational — remember the market turmoil from Holland’s tulip bulbs? For instance, if banks or governments make significant investments in stocks, you might witness a huge markdown of prices. The point is the banks could be trying to sell as much as they can within a short time, irrespective of the price of the assets in the market. Notably, real estate prices experience fluctuations in prices as well.

The deal? You may consider a long-term investment with a relatively high life expectancy. At one point, your $250,000 portfolio may decrease to $100,000 — irrespective of whether it has “safe and diversified” stocks. Stick there, don’t make a mistake trying to fight the inevitable. The drops and rises are part of the game.

#4 Mixed Holdings Are the Way to Go

Investors can cushion themselves from losses by including holdings from assets categories that move up or down under different economic conditions in their portfolios. Notably, some portfolios have a negative correlation — they do not move up or down at the same time. A mixed portfolio is a sure way to reduce the risk of loss irrespective of the market conditions. In case one asset category records losses, you can counteract the losses with returns from a different asset category hence a smooth ride.

#5 There Are 3 Approaches to Acquiring Assets

You can use 3 universally accepted ways of acquiring assets depending on your own disposable income and risk averseness.

• Systematic Purchases — in this case, you regularly buy and sell your investments over time, irrespective of the valuation. The key here is to balance the lows and the highs and make some profits.
• Valuation — here, you buy or sell guided by the intrinsic value of the assets or holding. This approach requires adequate knowledge of the market and evaluation criteria. Investors often use the strategy to go for a holiday without worrying that the market may experience a crash. If anything, the prices can only move whichever way for only so long.
• Market Timing — the approach entails buying or selling guided by a forecast of how the market/economy is predicted to be in the foreseeable future. This strategy is purely based on speculation.

#6 Work with a Qualified Advisor

It is generally assumed that most consumers can make rational financial decisions. However, a careful look at real-world results for investors has shown that this assumption is wrong.

In order to make “smartvestments”, not just investments, you need to be knowledgeable, experienced, and be able to ignore market fluctuations. You must have the proper temperament not to invest emotionally and be caught up in unnecessary losses. For instance, some people sell high-prospect holdings at dips during an economic crisis.

Ultimately, some investors end up with high returns because they engage professionals who give them advice, leading to a high return on investment.

The Smatvestments Series was created to bring investors valuable and much-needed knowledge to ensure a smoother path towards financial freedom. If you’re ready to embark on a new journey, Your Friendly Crypto Exchange, IXFI is here to offer you the best tools a crypto investor can make use of.