Ten Tenets for Successful Living

1. Know yourself as an investor

Many investors foolishly start investing before understanding their own financial objectives. However, it is only after completing a detailed and intricate self-appraisal that an investor will be able to identify goals and select suitable investments to match specific needs.

2. Establish a financial plan

Without developing and regularly reviewing a well-thought-out financial plan, investment decisions can become misguided and fail to deliver the appropriate balance between risk and return.

3. Understand the fundamental characteristics of each asset class

While a thorough knowledge of the four main asset classes (i.e. equities, bonds, property and cash deposits) may not be required for every investor, the basic pros and cons of each should be understood by all.

4. Allocate your assets appropriately

Having defined specific objectives, investors must ensure that these can be met through the most appropriate mix of the various asset classes.

5. Be clear of your investment time horizon

Time plays a critical role in deciding upon the appropriate investment mix. As a general rule, the longer your investment horizon, the more tilted your portfolio should be towards riskier assets.

6. Understand your risk tolerance

Embracing risk is a crucial part of developing an overall investment strategy. However, at all times, there is a need for investors to consider the downside as well as the upside of potential investment opportunities. It is only by appropriately assessing the risk-reward ratio that an effective decision can be made.

7. Diversify

One of the best ways to manage risk is to diversify. This is especially so in the case of equities, where a balanced approach in terms of geographic, sectoral and stock spread can reduce the sensitivity of a portfolio to individual influences.

8. Remain true to your discipline

While easier said than done, it is important that investors maintain an unemotional view regarding their investment philosophy and do not make rash decisions in times of volatile markets.

9. Be conscious of the tax implications of your decisions

Although investment decisions should never be made on the basis of tax considerations alone, tax can have a marked influence on overall portfolio performance. Consequently an understanding of taxation implications should be factored into any decision making.

10. Remember that the past is no indication of the future

The strategy of many investors appears to follow the misconception that the past is an indicator of the future. As such they often choose investments which have generated strong returns over more recent times believing such momentum will continue, without investigating the factors which have driven this growth and whether they are sustainable over the longer term. Investors who fail to realise the potential impact of using only past performance as an indicator of future performance do so at their peril.