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5 things to consider before diving into the next big thing

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We are frequently made aware of the new hot investment or the next big thing.

It can be easy to be to be drawn into this whether in fear of missing out, or the desire to get rich quick.

However, these strategies often do not stand the test of time and putting your faith in the next hot investment each time one comes around can distract from a sensible strategy.

It may be smarter to focus on what has always worked, after all we should want our financial plan to be sustainable over the long term.

Here are 5 things to consider before diving into the next big thing…

1. Risk

To achieve higher investment returns, you inevitably need to take on more risk. But how much risk is necessary for you to take to reach the financial and life goals you have set?

You might not need much, in fact you may be in a good enough position and already on your way to achieving your goals. So why make bets on high risk investments that may jeopardise that?

2. Past Mistakes

We can learn a lot from the past behavioural mistakes of investors. For example, selling an investment at a perceived “crash” at the fear that its price will fall further. Or pouring lots of your money into a new investment because it has a high return today.

Don’t worry, we all have these feelings when investing. But if we can recognise that we are acting in this way, we can remind ourselves of our investment strategy and stay on track.

3. Luck

We must be aware that when we hear stories of investors making huge gains, for example in a single share, ICO, IPO or cryptocurrency, it is largely down to pure luck. It is extremely difficult to replicate this luck so don’t let this district you from a sensible long-term plan.

4. Fear of missing out

The fear of missing out on the potential upside of new trendy investment could be hard to resist. How often do these last? How much of this FOMO is based on hindsight of other things that have passed?  It may be smarter to focus on what has always worked. Something simple like the S&P 500 has generated returns of around 10% per year since its inception in 1957 (Source: Macrotrends) and would have compounded your investment very nicely over that time.

5. Why?

Why are you making the decision to invest for your future? Why is money important to you?

Is it so that you can work less in your later years to spend more time with your loved ones? Is it so you can travel and enjoy your free time as much as you want to?

Think what smart decisions will take to you steps closer towards that and what could take you further away from your goals.

 

There is a minority of people that will get lucky occasionally from new or fad investments. The reality is that most of the time these investments are more speculative than robust long-term investments.

The vast majority of people will achieve more success by implementing something simple, such as an evidence-based investment strategy that is fundamentally based on long term empirical evidence of market behaviour. This strategy does not involve speculating on the next big thing or putting faith in the performance of ‘star’ fund managers to keep performing.

This cost-effective strategy observes the dimensions that have produced higher expected returns consistently over time and applies these dimensions to a broadly diversified portfolio.

Contact us here to get an objective view on making a sensible investment strategy that is suitable for you.

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