5 Easy Strategies For Smart Investors

by Kristina Tahnyak on May 11, 2010 · 0 comments

weekly roundup
There are several different types of investment strategies that can help investors reach their maximum potential returns on their portfolio over the years. Some examples are staying focused on the long term, don’t try to time the market, and don’t put all of your eggs into the same basket. Here are 5 easy tips to help you maximize your investment strategies:

1. Invest before you wake up.

If we don’t see the money in our account we won’t spend it on other things. Set up pre-authorized payments directly from your bank account into your investment account on your payday. This way when you wake up in the morning the money is already withdrawn from your account. It is forced savings.

2. Continue to Invest on a regular basis.

Dollar Cost Averaging is an excellent strategy that helps investors keep their costs low and their rates of return high. Dollar Cost Averaging encourages investors to make contributions into their investments regularly over time on a weekly, biweekly, semi monthly, or a monthly basis.

The benefit of investing regularly over time is that you are constantly buying into the market; both when it is high and when it is low. This strategy averages out the cost of each investment unit to be lower than it would if you made a lump sum deposit on one day of the year. When you make a lump sum deposit on one day of the year you have approximately a 1/261 (365 days in the year -104 weekend days) chance that you are buying into that investment on the lowest day of the year. Those are not very good odds.

3. Don’t try and time the market.

The best strategy for high potential rates of return in any market is to have a balanced and diversified investment portfolio. This includes foreign and home fixed income such as bonds, dividend funds, foreign and home equity, as well as a small cap mutual fund and growth investments such as stocks.

You can also invest in foreign securities such as specific countries such as China and Japan, or specific sectors such as health care or technology. However, these types of investments are very high risk due to the foreign exchange rate against our dollar, and the daily fluctuations in the various sectors. You should never invest more than 10% of your entire portfolio into specific foreign or sector funds. These types of funds are favoured by investors who accept high fluctuations in their portfolios because when the specific market is good the potential return is very profitable.

4. Over time it all adds up.

Saving a little bit regularly or whenever you can is better than not saving at all. Ideally you should save between 10% to 30% of your after tax income depending on your budget and expenses. Investing, especially investing for retirement is focused on the long term. Therefore, I know it’s hard, but don’t be discouraged by short term fluctuations. Keep your focus on your long term goals.

5. Add your savings into your budget.

Budget does not mean spend everything that you make. Plan ahead to cover expenses and invest for retirement and your “rainy day” account. “Rainy day” what does that mean? I thought that it meant when it’s raining outside and I have nothing to do go to the mall and spend my rainy day account. I am sure that I don’t need to tell you that this is not the case. “Rainy day” means Emergency Fund. You should accumulate 2 months of your total income into an account that is accessible anytime in case any unexpected emergencies arise.

(photo by epicharmus)

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