four investing tips

Remember these four things when you’re investing


The information in this article is market commentary only and reflects Lincoln's views and beliefs at the time of preparation, which are subject to change without notice. To obtain up-to-date information, please contact us.

The idea of owning a share portfolio can be daunting if you’ve never done it before. However, getting started on building a profitable portfolio is not as scary or as difficult as you might think, provided you have access to the right investing tips.

Achieving capital growth is one of the main reasons investors get into the market. This can be easier said than done, as many first-time investors make the mistake of having a ‘hit and hope’ type approach to their investing strategy, which can often result in a loss.

However, you can avoid losses by simply doing your homework on the stocks to buy before you even begin building a share portfolio. Doing your stock research on which companies to invest in is key to building a profitable portfolio.

Many investors start with the S&P/ASX200, which is a list of Australia’s top 200 listed companies. This is because larger companies are perceived as a safer option for many first-time investors. However, looking deeper means you can often find the big companies of tomorrow, provided you have the research insight and investing tips in order to identify them.

Be prepared to also hold on to your stocks for the long-term. Stocks are extremely volatile and trying to predict the market’s short-term movements is nearly impossible. Be patient and keep focused on your company’s fundamental performance and you’ll be on the right track.

If you want to boost your portfolio, we’ve listed four tried and tested investing tips that will work for even the savviest investor:

Investing tips #1) Focus on quality first and foremost

It makes sense that to achieve the best returns you have to be invested in the best companies. What determines a company’s quality can be measured by the strength of the company’s financial health, a good management track record in growing the business and an expectation that it will continue to do well into the future.

 

Investing tips #2) Be Proactive

Making timely decisions on buying and selling stocks is essential for the success of your portfolio. This is especially crucial when the fundamentals of a company change. Letting your portfolio evolve with change will help you avoid your portfolio remaining static. Your portfolio is much like a pond that requires flowing water to maintain the health of the system!

 

Investing tips #3) Manage an equally weighted portfolio of fundamentally superior companies

There are times where you may need to sell stock and it needn’t simply be because a stock’s fundamental performance has turned south.

Rebalancing is the concept of spreading your investment over the portfolio in order to reduce the risk of a few stocks having an over influence on performance. It is a common strategy for the proactive investor and a key element for long-term success.

Take the example of where a stock you are invested in sees the share price soar. Sure it is a great feeling, however, when a company’s share price continues to rise sharply, it may be prudent to reduce your exposure to minimise risk given that it now makes up a larger portion of your portfolio.

For a step-by-step guide on how you can implement this into your investing strategy, make sure you download our Guide to establishing and implementing a successful investment strategy

 

Investing tips #4) Re-Invest

Having a longer-term investment horizon with no immediate need to draw down on capital will give you an important investment edge. It frees you up to re-invest your profits from your previous earnings, which is a concept known as “compounding”. Basically, as the base of your investment grows, the future returns are amplified. If you are holding quality stocks, being proactive and re-investing dividends and profits back into your investments, the potential returns are likely to be most rewarding.

In order to grow your investment portfolio successfully, you need to ensure that you don’t take unnecessary risks and make hasty decisions. It’s not about “getting rich quick” as such approaches usually fail.

If you have a solid strategy in place and follow the investing tips mentioned above, you’ll be in good stead and on track to successfully boost your investment portfolio.

Our guide to establishing and implementing a successful investment strategy
The Golden Rules for successful share market investing
How the Financial Health Model can work for you