The problem with common sense in the investment world is that it is not so common. Common sense tells us that one should buy low and sell high. However, we often see investors buy high and sell low. The main cause of this is too much emotion and no real financial planning to have faith in. Over the last couple of years there have been some tricky times. Markets have been difficult and returns on investments have been fair.
Should we be out or in the stock market now? Should we wait and see? That is the million dollar question and millions are made and lost by how it is answered.
It is very difficult to time the market at the best of times. One is rarely given a clear time to buy as we were given in March 2009 when the markets were rock bottom. But then, you must have had guts, the liquidity and faith to invest in what seemed like the end of the world.
There is more to investing than just common sense.
You need to have an appropriate investment strategy to achieve your financial objective. This should be a written financial plan.
Your financial plan must take into account your individual needs, as no one financial plan fits all. You should have some understanding of the shares and unit trusts you are investing in. What do you approximate their intrinsic value to be? Then you have to consider whether you are investing for the long term, medium term or will you need your funds in the near future.
How do you sleep at night? When markets fluctuate are you very conservative and very concerned when investments lose value and are you tempted to sell.
Or are you a medium profiled investor, who will wait and watch performance of the investment for a year before making changes.
Or are you a very hardy investor and even if market conditions result in losses up to 20%, try to follow your long term investment plan. This better be a very good investment plan.
The art of investing is in the consistent, professional attention over time. Investing is not easy.
Using a good Investment Advisor will pay handsome dividends.
Nick Russell
Please note: This article does not constitute advice