7 Ways to Efficiently Improve My Investment Skills by 2020
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."
- Paul Samuelson
The Cambridge Dictionary states that: " Investment is the act of putting, money, effort, time, etc. into something to make a profit or get an advantage" Short, concise, easy understood, great definition. Although people have the understanding of what investing is, it is of extreme importance to know that investment requires skills, it is not enough to know the basics or read books about investing, a person has to have important investment skills to be a successful investor. A person needs to be able to have good judgment, communication, research and analytical skills.
2020, New Years, many promises and high hopes and dreams of improving their financial situation. They plan to pay off debt, cut their expenses, save and invest more, and generally manage their money better. Here are some of the ways to efficiently acquire and improve investment skills by 2020. There is still time!
How Can I Improve my Investment Skills Efficiently ?
"The individual investor should act consistently as an investor and not as a speculator."
- Ben Graham
Everyday something changes, the stock markets may have been stabled yesterday but because of a slight change everything goes up and down, like a roller coaster. This is why, in order to become (or continue being) a great investor people have to know there is no checklist, people should always continue to grow. If the world changes, then people should always improve their investment skills. The key message of this statement is that there are cases in which due to some unforeseen changes in certain fundamental factors, even great companies may face huge losses.
Investment Training Classes
Training classes are always a good idea, there are many types of investment classes for example accounting, which is literally, the language of business, it is most useful for investors who are not trained in accounting to take up basic accounting lessons.
Read! It will never be enough!
Reading is as important as eating, investors need to be continuously aware (be it by books, articles, finance news, etc) of what is happening out there and of what happened before and the strategies different investors used to solve that problem. Reading enriches the mind and allows an investor to have good knowledge of many aspects of the world, which will be helpful when it comes to analyzing companies and projects for investment.
However, since every investor has different preferences and looks for different subjects to learn about, the best way to find a great book that gives the skills he or she is looking for, is to go to a bookstore and find a book that is understandable. Some great books are:
- The Intelligent Investors - Benjamin Graham
- The Essays of Warren Buffett: Lessons for Corporate America -Warren Buffett and Lawrence A. Cunningham
- Rule #1 - Phil Town
For advancer investors, one of the most famous book is: Security Analysis by Benjamin Graham and David Dodd.
Patience is an extreme important skill that any investor should have. If people want to improve their investment skills, they should work on their patience as well. Putting money, time and effort into something does not mean that it will change in one day, or week. People need to know that the changes they will see will be long-term. Investors are betting on something, but that something, that project needs to grow, and change as the market changes. This is why investors need to be good planers and thinkers, because they need to analyze in a long-term. Most remisiers state that they need two or three years to develop the strategy that suits them the best so that they can generate good returns from the stock market.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
- Warren Buffet
Take Investment Seriously
People have to be very conscious that speculating and gambling in the stock market is NOT the right way! It is important to have clear that the stock market is a venue for companies to raise capital, not a casino. Each stock has its own underlying business behind it. Investors should view the act of investing as something serious, something worthy of a lot of study, continuos analysis and a lot of effort.
- Enjoy The Investment Process
As stated before, Investing is a journey of building and growing wealth, it requires knowledge and patience therefore, investors should embrace and enjoy the process. When searching for investment pictures, there is always the one with seeds in it. Why? Because mostly people need to think of investing as planting the seeds for financial success now and then enjoying the fruits many years down the road. Investing is also a journey of self-discovery as people start to learn more about your psychology and shortcomings. The process can make us a better person if we learn from our mistakes and strive to do better.
Where to invest to get a higher ROI?
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
All investors want good returns from their investments they want to improve their life and money management. However, most of the times, instead of generating returns, retail investors are suffering from losses from their investments. One of the key differences between an intelligent investor versus a normal investor is that the intelligent investor will be aware that he or she may make mistakes in some of his investment decisions while a normal investor tend to overlook the fact that he or she will make wrong decisions no matter how good he thinks he is.
To create a large portfolio it is important to :
- Save money regularly
- Invest consistently
- Learn to stay the course of as many years as it takes --> PATIENCE
However, below are seven strategies that will be of assistance into improving your investment gains by 2020.
1. Invest in Lower Cost Ways
It is easy for an investor to to ignore investment expenses during bull markets (especially when making money). However, the impact of those expenses can really add up over time, and not in a good way. It is extremely important for investors to be organized and focus on every detail and small things even if they don't "see them" or find there will be an impact. It is important to know that when we talk about investment, there is always and impact.
In fact, lowering expenses just 1% can make a huge difference in the performance of an investment portfolio over the long-term.
Want numbers? Here is an example:
"Let us say that an investor is earning an average of 10% per year on his/her portfolio, but paying 2% in investment fees of all types. That will leave him/her with a net rate of return of 8%. If the portfolio of this person is $100,000, it will grow to $466,097 after 20 years."
If the annual investment expense is cut in half (to just 1%) , the effective net return will rise to 9%. If the portfolio is $100,000, after 20 years it will grow to $560,440. That’s a difference of roughly $94,000, and it is earned simply by cutting investment expenses by 1%.
Now, how to find the lowest fees possible? An advice would be to research for an online broker that has either a low- or no-annual fee, and lower transaction costs. Favor funds over individual securities (and choose no-load funds wherever possible).
2. Having a diverse portfolio is extremely important
Diversification sounds cliché but it is important to know the importance of diversification when it comes to investment expenses, because the concept can easily get lost during a bull market. If in the end, the stock allocation becomes disproportionately large in a rising market, it will actually help a portfolio performance (at least for as long as the bull market lasts.)
But that’s the problem – bull markets never last. Markets fall much more quickly than they rise, which means that advance preparation is completely necessary (as stated above). And that is what diversification is all about – preparing for changing circumstances. No matter how well a stock allocation is doing, be sure to maintain appropriate percentages of a portfolio in both fixed income investments and cash equivalents. They will help to reduce the losses on stock allocation in a down market. Remember, minimizing losses during a bear market is just as important as maximizing your gains in a bull market.
3. Rebalance Regularly
Rebalancing is all about returning the portfolio to its original level of diversification. If there was a plan to originally have 60% of a portfolio invested in stocks, 30% in bonds, and 10% cash, it will be time to rebalance if the stock allocation has grown significantly higher than 60%.
4. Take Advantage of Tax Efficient Investing
Such as investment expenses, income taxes have a substantial impact on the performance of the investors portfolio. While it’s not usually possible to make them go away completely, it’s very possible and absolutely necessary to minimize investment taxes wherever possible.
5. Follow The Leader
Ever heard of an expert confidently predict that the Dow is going to 25,000 or crashing down to 5,000? Ignore them. There is no leader or expert, who make claims like that are nothing but crystal ball gazers. With all due respect, they have no more insight as to where the market is heading than anyone else, but they sure think they do. That does not mean that they are harmless, because they TRUST. Besides having the basic knowledge and skills, it is necesary for people to trust in themselves, no trust, no gain.
6. Do not loose focus on the portfolio. No matter what the market does
A portfolio that is growing through a combination of investment gains and regular contributions can grow dramatically. Investors should never allow the direction of the market to affect their contributions.
Both bull markets and bear markets can cause investors to be hesitant, during bull markets, strong investment returns can easily convince an investor that continued contributions are no longer necessary. During bear markets, investors may become convinced that contributing to their investment portfolio will be throwing good money.
Both assumptions are completely counter-productive! Contributing during a bull market will cause the portfolio to grow faster and provide fresh capital for more investments. Contributing during a bear market is even more important. In the case that a portfolio is falling in value due to negative returns, the contributions will be the only factor that minimizes the decline.
7. Think Long-term
Investors need to know that it is of extreme importance to be patient and think long-term. This is what all of this is about! The training curses, the patience, the reading and learning. Good investors need to think that the decisions they make, the projects and companies they invest in will be for the future. People will see the change in years, that is why it is of extreme importance to learn and be patient; to think long-term. To wait, but to be strategic.
There are so many different views of investment, so many things to think about, so many options and decisions to take. Yes, it requieres a lot of knowledge, but the biggest requirement of all is passion. Loving what you are doing, understanding it and enjoying the ups and downs.
If you liked this article we recommend Investment Ideas 2019 where you may get your inspiration going!