Successful investing depends on choosing the right allocations for your portfolio, but equally
important are the habits that support investing. Honing the following habits can contribute and help you be successful.
Do your homework before you invest.
Many things in life can be done on the spur of the moment but financial investing should not be one of them. Many portfolios are filled with investments based on the latest fad, a hot stock tip, or the suggestion of an over-zealous salesperson. Taking time identifying your values, goals, and priorities then building a long-term plan that aligns with them can make all the difference when making financial decisions, particularly in a rapidly changing market. Just like dessert follows the main course so investing should follow planning.
Diversify.
Diversification is a fundamental principle of investing that has a long history of use in the financial world. Over time it has been described colloquially as “not putting all of your eggs
in one basket,” or technically as “the process of allocating investments across various financial instruments, industries, and other categories.” The goal of a diversified portfolio is to reduce your exposure to risk, to smooth out returns, and to improve long-term portfolio performance. One mistake investors inadvertently make is to put their money in multiple funds that basically hold the same assets. Duplicating positions in funds lessens the diversity of the portfolio. What you may want are assets that behave differently from one another, either inversely or completely. Making use of exchange-traded funds, index funds, and other pooled investment funds, may be a great way to gain exposure to a wide range of assets that may be appropriate for your financial goals and time horizon.
Keep an eye on taxes.
When it comes to investing, it's not just how much you make that matters, it's how much you keep after taxes. The amount lost to taxes and other costs is one of the key factors affecting your returns, just behind proper investment selection and asset allocation. Even small amounts can quickly add up to a lot over the years, so anything that can be done to reduce the drag will help. The good news is that there are several things that can be done to slow the drag. Active trading, a preference for income, rebalancing the portfolio, and estate planning issues are factors that can be of help. Making use of tax-efficient accounts and tax advantage accounts is also valuable. If you want to keep more of your income, managing
your investments with tax efficiency in mind is a must. The beauty is that tax efficient investing techniques are accessible to almost everyone.
Keep your emotions in check. Many bad decisions are made in the heat of the moment. Investing is no different. The emotions of greed and fear can easily get the upper hand as the market rises and falls. Putting your emotions on hold and investing with logic will make you a better investor. One of the ways to accomplish this is to ignore the minute-to-minute returns. Many people watch their portfolios too closely. Adjusting your “looking quotient” is one way to improve your decision-making ability. Another way to reduce the interference of emotions is to keep things in perspective. According to the JP Morgan Annual Returns and Intra-Year Decline study published March 3, 2022, the market has had intra-year drops of just over 14 percent during the past 42 years, while ending positive in 32 of those years. The long view can help keep emotions in check and lead to better decision-making. Knowing how much you can afford to lose is important as well.
At R&R Financial Advisors, we are assisting young medical professionals to develop and
implement sound investment habits.
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Investment advisory services offered through Brookstone Wealth Advisors, LLC (BWA), a registered investment advisor. BWA and Brookstone Capital Management, LLC are affiliated companies. BWA and R&R Financial Advisors, LLC are independent of each other. Insurance products and services are not offered through BWA but are offered and sold through individually licensed and appointed agents.
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