When it comes to investing, we all want to see better performance. No one thinks it’s a good idea to perform poorly.
However, getting adequate performance to meet your goals isn’t always as easy as it seems. Sometimes it can be downright challenging.
As you set up your plan, it’s a good idea to pay attention to investing principles that can help you on your way. Here are three principles that can enhance your performance for the long-term:
1. Know What Type of Investor You Are
First of all, it helps to know what type of investor you are. The ancients said, “know thyself.”
This holds true as one of the most important investing principles. You should know your own investing style and understand how you operate. Are you better as a passive investor, focusing on mutual funds? Or do you like value investing, looking for great deals? Some people even thrive as active traders or day traders, enjoying the action that comes with these activities.
Pay attention to the way you prefer to invest, and keep track of your risk tolerance. And be honest. Don’t try to be something you’re not. If it isn’t working out for you, be aware of that and don’t try to force yourself into a box that isn’t consistent with your personality and your style.
Once you know what type of investor you are, you can put together a plan that addresses your strengths. Long-term, this is more likely to result in success.
2. Invest with Some Safety in Mind
There is no way to be completely safe with your investments. However, one of the best investing principles to live by is to consider a margin of safety.
First of all, make sure that the money you invest isn’t needed immediately. Can you afford to put money away for a long period of time? This is money that should go into your retirement account.
If you are into day trading, or if you like to speculate, only use the money you can afford to lose. The learning curve is steep in these types of situations. Plus, it’s easy to lose money quickly. Make sure that you are careful to not put everything into investments that could devastate you financially.
And don’t forget to look for investments that have a fairly good chance of offering long-term returns. Even if you know you like day trading, a portion of your portfolio can benefit from relatively safe investments like index funds. Also, consider value investments that pay dividends and that have good earning potential or solid histories.
Pay attention to what you’re doing and make sure that there is an element of safety and security in your long-term investment plan. Use tools that can help you evaluate your investments more effectively. That will increase the chances that you will see the performance you need to meet your goals in the future.
3. Realize that Volatility is Part of Investing
It would be nice to think that your investment returns are stable and don’t vary over time. However, the reality is that volatility is part of investing. You can’t escape it, so you need to be ready for it. This is one of the investing principles that you have to understand if you want to be a success.
When you prepare for volatility, you are less likely to pull your money out of your investments during a market event. One of the problems many investors face is that of panicking and selling to lock in losses.
Instead, you need to recognize volatility as a potential opportunity. When the market is down, it’s a great time to hunt for low-priced bargains. You can buy more for less during these times.
However, you still need to keep in mind your margin of safety. Don’t buy something just because its price has dropped. Make sure to look for value investments with staying power. You want bargains.
You can also mitigate some of the impacts of volatility by using strategies like dollar-cost averaging. So, instead of changing things up all the time, you stay the course and automatically benefit from market events by getting a better deal. This works especially well in conjunction with indexing.
Once you understand some of the investing principles that can help you stay on top of your portfolio, you are more likely to make better decisions that result in better long-term performance.