What makes that investment right for you?

 Filed under: Personal Finance | Posted by: Editor

When it comes to investing, one thing is very certain! There is no single approach to it and every approach you choose has its pros and cons. Investors do not become well known unless they are successful.

One of the keys to becoming a successful long-term investor is finding a system that best fits your goals and objectives. Every investor should be a “value investor” which has proven to be a successful investment strategy.

When you invest, you are simply in the process of acquiring assets that you hope will grow in value. In addition to the popular stocks and bonds, investments can include owning a home, owning a business, owning real estate or having money in savings accounts/fixed deposit accounts. No matter which area you choose, the question is what makes that investment right for you?

Whether in equities, fixed income, or money markets, every investor should develop systems that help him achieve his investment goals.

Investors must consider the long-term prospects of every investment they choose. The returns from investing will vary greatly from year to year. It is only by viewing your investments as long-term can you hope to earn returns to justify the risks.

According to Matthew McCall, president, Penn Financial Group, “Deciding on an asset allocation is only half the battle. The next integral step will help investors determine which sectors to focus on when searching for specific investments such as stocks and exchange traded funds (ETFs). Analysing the pros and cons of specific sectors (that is healthcare, technology and mining) will narrow the search even further.”

For those investors interested in equities, McCall, who is also a registered investment advisor said “if an investor feels the added risk of selecting and buying an individual stock is worth the extra reward, there is an additional step in the process. It involves analysing individual stocks from a number of perspectives.” The fundamental analysis includes a variety of measurements such as price/earnings to growth ratio, return-on-equity and dividend yield, among others.

“An important aspect of individual stock analysis will be the company’s growth potential over the next few years. Ideally, investors want to own a stock with a high growth potential, because it will be more likely to lead to a high stock price,” McCall added.

The financial expert says that the ability to keep investors from over-investing in equities during a bear market is the biggest pro for the system, adding, “When a market is in a downtrend, the probability of picking winning investments drops dramatically even if the stock meets all the required conditions.

When using the bottom-up system, an investor will determine which stocks to buy before considering the state of the market. This type of approach can lead to investors being overly exposed to equities, and the portfolio will likely suffer.”

By: Iheanyi Nwachukwu