Investing in today’s global geopolitical economic climate can appear daunting due to the constant flood of market news, many investment options and continuously fluctuating market conditions. However, there are several fundamental principles that every investor should adhere to. These principles aim at building an effective long-term strategy to meet your financial aspirations.
1. Planning your investment goals
Establishing clear investment goals is crucial. It aids in maintaining focus and ensures you stay on course towards achieving your financial targets. A well-structured plan offers the confidence to stay committed. Factors such as age, investment timeframe and risk tolerance must be considered while setting these goals.
2. Longevity factor and enhanced saving
Throughout our lives, we may have seen instances where loved ones have faced financial hardships. These situations can be a powerful reminder that it’s never too late to make a positive change in your financial life by stepping into the world of investing. If you find yourself regretting that you didn’t start investing sooner, don’t let this hold you back. The best time to start is now. The key to successful investing isn’t necessarily about when you start, but rather about maintaining consistency and discipline once you do.
3. Subtle erosion of cash due to inflation
Though a preferred asset class, cash isn’t always the best option. Inflation can gradually diminish the purchasing power of your cash, making it less appealing over time. Considering inflation, cash generally falls behind other assets like stocks and bonds. This implies that, over time, cash will generally depreciate in terms of purchasing power.
4. Boosting wealth with compounding
Often said to be the eighth wonder, compounding can significantly boost your wealth over time if you start investing early and reinvest your income. The power of compounding is immense, to the extent that even a few years delay in investing or opting not to reinvest income can drastically affect your final returns.
5. Risk and return – the inseparable duo
While the ultimate goal is to achieve the highest possible return with minimal risk, in reality, there is often a trade-off. Higher potential returns come with increased risk and vice versa. Thus, if you’re targeting higher returns, you must be prepared and capable of withstanding substantial fluctuations in your investment’s value.