Investment
Secrets of successful investors
Successful investors employ tried and true investment techniques and stick to their strategy in good and bad times. Here are our five top investment tips that have stood the test of time.
1. Diversify
Diversifying across a range of asset sectors, industries and securities reduces market risk and can improve your performance potential. Investment markets move up and down at different times. With a diversified portfolio of investments, returns from better performing investments can help offset those that underperform.
2. Invest often
Timing the markets for the best time to invest is easier said than done, which is why many investors use a dollar cost averaging strategy. With this strategy, you invest a set amount into a managed fund on a regular basis, regardless of the unit price, to average out market fluctuations over time. The great thing about this strategy is that you are always invested, so you don't miss out on potential performance by sitting on the sidelines waiting for the right time to invest.
One of the easiest ways to implement this strategy is to start a regular investment plan with a managed fund. Vanguard offers this service through BPAY®. Once you've opened your investment with $5,000 or more, you can use BPAY® to start a regular investment plan with as little as $100. You can even invest in a new fund without completing another application form.
3. Invest long term
People often get caught up with short-term stock selection, which can deliver inconsistent results. While one stock might deliver great returns one year, it is difficult to pick winning stocks every year.
When it comes to investing, it generally pays to invest long term. While sharemarket returns can fluctuate widely over shorter periods of time they tend to be less volatile over longer time periods.
4. Costs matter
Costs can take a large chunk out of your investment return. So, it's important to compare fund fees before you invest. Look at things like contribution fees, adviser commissions and management fees as these can all add up over time. Not all managed funds charge these fees, so make sure you examine the fine print and know exactly what you are paying for and how much. Some funds, like Vanguard's Investor Index Funds, have scaled management fees so investors pay a lower fee on higher amounts.
5. Less tax can mean higher returns
A fund manager's investment approach can make a big difference to the amount of tax you pay on your investment earnings and the amount of investment return you get to keep.
Turnover is one of the most important indicators of the tax efficiency of a managed fund. Turnover of a fund manager's assets reflects the level of trading activity within a fund and is usually much higher in active funds. Some fund managers can turnover their portfolios by 100 per cent or more in a year.
Index managers, like Vanguard, who use a buy and hold strategy minimise turnover and tax. For example, Vanguard's Australian Share Index Fund has turnover of around two per cent.
BPAY® is registered to BPAY Pty Ltd ABN 69 079 137 518.
