5 Steps to a Better Investment Strategy

By Jason Fittler

“I can help any man get what he wants, but I cannot find any man who knows what he wants.”

When it comes to investing the majority of investors have no idea what it is that they want to achieve. Except for some vague idea that they are falling behind and as such they want to make sure they keep up with everyone else.

The fear of falling behind is a key motivator of many investors. It is also the key pitch of every salesman.

Investing is a personal thing. The end goal is only relative to you. How well your neighbour does is completely irrelevant, as long as you achieve your goal.

It is human nature to compete. This is how we survived and is a core part of our nature.

But chasing after last year’s winners or taking bigger risks to make up lost ground will nearly always end in tears. 

Keep in mind that no one ever purchased a drill because they wanted a drill. Everyone who has ever purchased a drill wanted a hole. It is the same with investing. We do not invest because we want more assets; we invest because we want the income the assets produce.

Here are 5 steps to consider when you develop your own investment strategy:

1. The first step of your investment strategy is to:

a. Decide what sort of lifestyle you want.

b. Work out the cost of that lifestyle per annum

c. Work out how much capital you need to earn that amount of income.

2. The next variable is time. When will you need this income? Is it when you retire or do you want to slow down and work less. At this point many investors realise that they should have started this process many years ago. Time is a relative thing if you leave it too late then you have to make one of the following choices:

a. Work longer

b. Reassess your income need or live on less

c. Increase the risk in your investments to make up the shortfall in less time.

3. How much risk you are willing to take? The higher the risk generally means a better return, and a shorter time to achieve your goal. But there is a cost if things go wrong, it could set you back many years. Risk is also the hardest thing to work out. Until you have suffered a loss you do not understand risk. If you chose a low level of risk, then you may never achieve your goal.

4. What type of investments will you buy? Do you understand the different type of investments? At this stage you will need to start doing some homework. There is plenty of free information out there. The key is to read as wide as possible and speak to a few different investment managers who sell different investments. The rule of thumb is if you do not understand it, best you do not buy it.

5. Insurance. What level of insurance do you need to protect your main asset, you! Keep in mind that it is your ability to earn income, which will fund the buy of any investments. If you were to lose this ability you will also lose the ability to achieve your investment goal. Insurance is a key part of any long-term strategy. Always look at insurance. 

Follow these steps before you start spending money and you are on your way to being a successful investor.

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