As 2013 draws to a close, many investors are starting to think about strategies for the coming year. With signs from around the world that many economies are looking a little healthier, it’s interesting to note that there is a certain sense of confidence.
Just a few years on from the global economic meltdown, however, it’s not surprising that many investors are taking a cautious view. One of the stand-out elements of the problems faced in 2008 was that so many seasoned analysts and economics failed to spot the storm that was brewing. That’s certainly a disconcerting point and one that wise investors will bear in mind.
More importantly perhaps, there’s a feeling in some quarters that lessons have not always been learned. The economic problems are often associated with cheap credit and by a failure of senior bankers to understand the various investments that they were buying into. In terms of stability, it is obviously to be hoped that such mistakes won’t be made again.
A balanced portfolio
But what impact will this have on your thinking for next year? We are often told to look to diversify and it’s long been held that this should be part of a successful investment strategy. The basic idea here is that you should avoid exposing yourself to a great level of risk, which might be associated with placing all of your money into a single stock, or even concentrating on one industry.
By seeking to have holdings in a variety of areas, you should be protected against individual falls. If you are particularly certain about a single type of investment, then you may well argue that diversifying will limit the amount of money that you have available for that particular investment. This is certainly true and there’s undoubtedly a risk that you may miss out on substantial gains. The whole point of the approach, however, is that it should also offer protection, in case issues arise that you could not have predicted.
That question of predicting changes is something that crops up again and again. As I’ve already mentioned on a couple of separate occasions, it’s clear that industry professionals will get predictions wrong, just as the rest of us do. There is no way to escape such issues, but that doesn’t mean that you shouldn’t try.
Research for success
You’ll find that you are much more likely to be successful, if you’re prepared to take the time to research investments in advance. Don’t ever be tempted, for example, to simply accept a tip from someone else. After all, if you haven’t carried out research into a particular company or type of investment, then how can you possibly know whether you are really being presented with a great idea?
One of the key reasons for carrying out research into any investment, from shares in a company to a vintage bottle of wine, is so that you can understand the level of risk that’s involved. Your priority for 2014 will be to assess risk levels accurately and to make intelligent, informed decisions as a result.
Understand what risk really means
There may be occasions when you will fail to identify the true nature of the risks that are involved, but you simply must make an attempt to do so. When seeking to build a balanced portfolio, you will wish to be sure that you have that thorough understanding of what is involved with every investment. In order to reach that point, it’s likely that you will want to spend many hours understanding what’s involved.
Your investment strategy will obviously need to be tailored to meet your needs. In this post, I’ve covered some specific areas, helping to ensure that you have some guidance on what to look out for. As with so many areas in life, there are few shortcuts available to you.
Those who produce the best investment outcomes option spend the most time working on this element of life.