Wealth management can seem confusing and complicated at times. In a world of volatile investment markets and continually changing legislation, many investors simply don’t know where to start.
However, wealth management doesn’t need to be overly complex, and by keeping things simple, it’s possible to enjoy excellent long-term returns on your capital. With that in mind, here’s a look at ten things successful investors do.
Diversification is a fundamental risk management concept in wealth management. Experienced investors understand that capital should be diversified over several asset classes including equities, bonds, property and cash.
Your ‘asset allocation’ will have important implications for both the returns and the volatility of your portfolio, and therefore it’s important to spend time constructing a portfolio with an asset allocation that suits your risk profile.
Successful investors understand that risk is related to reward. In other words, it’s impossible to generate strong returns on your capital without taking on a degree of risk. Asset classes such as equities and property are more risky than savings accounts, but can generate considerably higher returns over the long term.
At the same time, successful investors understand that risk management is crucial, and that it’s important not to take excessive risks. Capital preservation is one key to long-term investing success.
Fees can detract from portfolio returns significantly over time. While a 1% fee per year doesn’t sound like much, on a £500,000 portfolio, that 1% equates to £5,000 per year, and over a 20-year investment time horizon, that adds up. Investing through products such as low cost index funds and exchange traded funds (ETFs) is an excellent way of reducing portfolio fees.
Similarly, taxes can be another significant detractor from portfolio returns. Successful investors make the effort to understand tax minimisation strategies, and invest through tax-efficient vehicles to ensure they pay as little tax as legally possible.
Pick the best opportunities
“The difference between successful people and really successful people is that really successful people say no to almost everything.” – Warren Buffett
Another concept that the best investors understand is that they don’t need to invest in every opportunity that comes along. Waiting patiently for the best investment opportunities, can make a significant difference to your long-term investment returns.
Have cash available
For this reason, successful investors understand that they don’t always need to be fully invested. Having cash available on the sidelines gives you options and allows you to take advantage of attractive opportunities when they arise.
Invest for the long term
Successful investors understand that the big gains from investing come not from what happens over a one-year horizon, but from what happens when gains are compounded year after year over a long-term investment horizon.
Ignore the short term noise
Therefore, it pays to ignore the majority of the short-term noise. In today’s digital age, investors are continually bombarded with information in relation to stock markets, share prices and global events. It’s easy to get scared out of the market by focusing on the short-term noise. It’s important to remember that investments regularly rise and fall in the short term, and that it’s the long-term results that count.
Lastly, successful investors realise that seeking advice from a specialist in the wealth management field can be beneficial. With that in mind, if you require assistance navigating the financial environment, don’t hesitate to speak to Credence International today.