Mark Lister, 21 December 2017

Keep your eye on the long-term.

While markets can be highly volatile over the short-term, over longer timeframes they are actually quite predictable and have produced consistently strong returns. If you are buying quality companies with good long-term growth prospects, you will be much better off in ten years than if you had persistently tried to time your entry and exit points. Keeping focused on the long game and ignoring the short-term noise is difficult, but if you can do it, you’re onto a winning strategy.

Focus on quality, in both equity and fixed income.

There is no need to consider sub-standard investments simply because they enhance diversity. Stick to the best when it comes to cornerstone holdings, and only consider investments that meet your quality and income requirements. There are literally tens of thousands of shares you can choose from in the world, so why bother with anything mediocre? Buying quality is even more important when it comes to fixed income. Don’t put your capital at risk in exchange for a slightly higher interest rate.

Give up trying to time the market.

Consistently trying to pick the best time to buy and sell is impossible, and investors run the risk of missing some of the best returns if they regularly move in and out of the market. When it comes to investing fresh capital, enter the market gradually. Avoid the risk of buying at a market peak by dividing your funds into equal amounts and investing in instalments over a period of time.

Invest for income growth.

Income growth is a key element of share investing. Portfolios should always generate an income stream, but it’s even more important for that income stream to be steadily growing over time. Own a basket of companies that pay sustainable dividends, with the potential to grow them. If you don’t need the additional income, reinvest the dividend payments back into the portfolio and learn why Albert Einstein called compound interest “the eighth wonder of the world”.

Review your holdings, and be willing to make changes.

Investing is not a set and forget process. Your overall portfolio and its holdings need to be monitored and reviewed. Don’t do it too often or you’ll end up tinkering unnecessarily, but do a thorough assessment at least once, maybe twice a year. You need an investment roadmap to get to your destination, and if your portfolio has veered off the path, make some changes to get it back on track. Look at your current position to see how it stacks up against your objectives, goals, and risk profile. Don’t be afraid to sell where necessary, even though it’s difficult. That might mean admitting you were wrong about a share or an idea, or it could mean taking profits in a position that’s worked well but has got out of whack.

Above all else, stay diversified.

Some people think you should have all your eggs in one basket, and then watch it very closely. That’s fine if you’ve got a perfectly working crystal ball, but for the rest of us it’s not great advice. Most investment disasters could be avoided by adequate diversification. That means having a good spread across asset classes, regions, sectors and companies. It also means ensuring you have a portion of your portfolio invested internationally, as insurance against “New Zealand risk”.