Being a better investor also means that you have a clear perception of your financial goal. It means that you are well disciplined in terms of managing your income and sticking to your financial plan. Allow us to help you become a better investor by following our given steps.
Link your investment to your goals
Start by setting up your goals. Ask yourself, why are you investing this money? What do you wish to attain? Knowing what you want to accomplish will give you a clearer perspective as to how to execute your planned investment. It will help you determine the factors on where and how you should invest.
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Reevaluate your plan and goals regularly
Changes are inevitable. I guess by now, we all have a common understanding that the only thing permanent in this world is change. When changes occur, it’s also the perfect time for you to reassess your investment strategy as reflected by your new situation. You need to reevaluate your plan each year and check if it is still in line with your goals.
Understand the difference between risk tolerance and risk capacity
Risk tolerance is the amount of volatility you can handle in your investments. With a high-risk tolerance, you agree to accept seeing big swings in your portfolio. You’re comfortable living with unrealized losses and confident in your ability to ride in market downturns without panicking. If you have a low-risk tolerance, you know you don’t want to deal with wild swings and lots of volatility, so you can invest accordingly.
However, your risk tolerance is not the same as your risk capacity. While risk tolerance is subjective, risk capacity is objective. It’s how much risk you can take with your investments. It’s determined by how much you need to meet your goals. Being a better investor means you understand that while you may feel completely okay with taking big risks, you know you can only take on so much risk as dictated by your goals.
Diversify your accounts and portfolios
Asset allocation and diversification within your investment holdings are important in creating your portfolio. Always consider what your goals are. Make sure your accounts are properly diversified to empower you not just to have the money but also to be able to access the funds you need when necessary.
Avoid the opportunity for human error
Of course, we are all human beings. We are all prone to making human mistakes. Mistakes that are mostly driven by our own emotions. However, do your best to avoid making irrational decisions. Stick to your established plans, strategize, and strictly execute them.
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