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A Comprehensive Guide to Creating the Perfect Investment Strategy

If you want to start trading stocks successfully, you need the right strategy. Here’s a comprehensive guide to creating a winning investment strategy.

A recent study found that only 44% of Millennials aged 26-35 invest in the stock market. In the 18-25 bracket, less than a quarter of individuals invest.

Investing is one of the best ways to grow and secure long-term wealth. However, many people find themselves overwhelmed and uncertain with creating the best investment strategy for their financial needs.

Let’s get into what you need to know to create a solid plan!

Define Your Goals

Before you begin throwing money into the stock market, you need to assess why you want to invest.

Are you looking to save for retirement? Fund a big vacation? Prepare for a child’s college education?

Whether you have one, specific goal or several financial plans, you need to define why you want to invest. This will help orient you to calculating how much you’ll need to save and the kind of strategy you choose to follow.

Define Your Timeframe

After assessing your goals, you should consider your investment timeframe. In general, the longer your timetable, the more risk you can take with your portfolio. That’s because longevity enables you to withstand market downturns.

If your investment timeframe is short (less than ten years), you’ll want a more risk-averse portfolio. That’s because you don’t want to need that money if you face a market downturn.

Determine Your Investing Schedule

Some people dump money into their portfolios whenever they have spare cash to spend. This approach is lump-sum contributions. These investors may believe in the adage that time in the market beats timing the market.

Others take advantage of the dollar-cost averaging approach. With this, you may mitigate the risk of investing all your money at the wrong time by following a consistent pattern of gradually adding more cash to your portfolio over an extended period.

You’ll need to determine which one is easiest for you to follow. Investment experts go back-and-forth between lump sum and dollar cost averaging, but the best schedule is the one that makes the most sense to you.

Maximize Tax-Advantaged Accounts

Contributing to a company-sponsored 401(k), Roth IRA, or HSA can reap you several benefits. Not only do they provide you with the ability to invest, but you can also lower your tax bill and enjoy your money growing on a tax-deferred basis.

Most financial experts recommend cushioning yourself with an ample emergency fund. After that, you’ll want to consider contributing to your company’s 401(k) to at least secure any company match. That’s free money!

Before investing in any extra brokerage accounts, it’s always best to use these tax-advantaged options first.

Consider Risk Tolerance

Even if investing represents a numbers game, there’s no doubt that your participation can feel, well, emotional. That’s because we naturally feel excited when our net worth rises and feel anxious or sad when it decreases.

Unfortunately, many intelligent investors make rash or impulsive decisions based on their emotions. In the long-term, this strategy rarely fares out for the best.

Instead, you owe it to yourself to consider how much risk you are willing to stomach. Do you want to be the one watching the market trends every day? Or, would you rather have a more passive, leave-it-to-be, approach?

Neither one is better than the other, but it’s crucial for you to consider how much risk you can handle. After all, you want to be able to anticipate how you would react if you lost a quarter of your portfolio overnight, right?

Consider Asset Allocation

By diversifying your assets, you can safeguard yourself from underperformance in any one class. It’s important to remember that almost every financial expert disagrees on what constitutes the perfect asset allocation. Instead, you will need to find what works best for you.

Start by determining the ratios you want of cash, property, bonds, and shares within your portfolio. This doesn’t need to be a tough number, as you will rebalance your funds throughout your life.

A common rule of thumb here? Don’t put all your eggs in one basket. By investing in only one set of shares, you may risk losing far too much money.

Check The Fees

Throughout your lifetime, high expense ratios and management fees can take a severe cut in your investments. Even something that seems as minuscule as 1% can mean the difference between tens and thousands of dollars.

For each stock you choose to invest in, make sure that you are aware of the expense ratios and associated fees. While they don’t need to be the sole factor in making your choices, you should be mindful of how they can impact your portfolio.

Access the Right Information

In today’s day and age, we have access to infinite information with the mere tap of a computer mouse. With that said, it’s more important than ever to make sure that you’re using the right tools to research your investment strategy.

Some people start by using financial planners or advisers. You’ll want to make sure that you find someone trustworthy with a solid reputation (like the Keith Fitz Gerald track record). You can always ask colleagues or family members who they recommend.

Others prefer using their own watchlists, monitoring tools, or alerts. A simple Google search can yield tremendous information related to stock recommendations and company research. Spend some time familiarizing yourself with this knowledge.

Final Thoughts On Creating the Perfect Investment Strategy

The best investment strategy is the one you can trust and follow. Good investors know that the process takes time, patience, and even a little bit of heartache. Commit to the process and keep your head in the game!

At More Than Finances, we’re passionate about helping people of all financial backgrounds earn, save, and invest more money. Check out our free downloadable software today.

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