6 Steps to Simplify Your Investment Strategy

Investing in stocks can be…tough. It sometimes feels like you’re running around with a black box over your head.

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It’s impossible to accurately predict exactly what the future holds, but one thing we know for sure is that we’ll need money. You may want to send kids to college in 15 years, buy a house in 5 or purchase laptop in 1. Whatever your goals, you’ll probably (definitely) need money to achieve them. Investing in stocks and other equity securities is a good way to put your money to work now for use later on in life. The problem is…if you haven’t invested before, getting started can be intimidating. Here are 6 tips that may help you simplify the daunting task of investing in stocks.

1) Buy what you know

We know you’ve heard this one before, but stay with us here. The idea here is not to stress out over researching stocks and picking the next “winner.” If you trust your intuition and invest in products you use every day, it may pay off in the long run.

This isn’t to say that you should invest all your money into Apple because you own a Macbook Pro and an iPhone. The idea is that you can make the process of selecting investments easier by taking a look around you, noting which brands you use, and thinking about which of those brands you feel will be around for years to come.

2) Diversify

This is an important part of your investing strategy and it’s not as difficult as it sounds. Simply put, diversification means don’t put all your eggs in one basket. So, to lower your potential investment risk, you should spread your money out over a number of different asset classes (such as stocks, bonds, and cash) and different industry sectors (such as technology, retail, and healthcare).

By diversifying your investments, you can manage the amount of risk you take on in your portfolio. The main idea supporting the principle of diversification is that it’s unlikely for different assets classes and industry sectors to be correlated, or move the same way, over time. This means that if your investment in technology stocks goes down, your investment in pharmaceutical stocks would not necessarily be affected.

3) Invest in ETFs

Investing in exchange traded funds, or “ETFs” can be a way to achieve “built in diversification” and you can buy them in the same way your purchase individual stocks.  You can purchase an ETF that tracks an index, such as the S&P, a commodity, bonds, or a basket of assets. For example, if you wanted exposure to the entire technology sector, you could buy one ETF, such as the Technology Sector SPDR (XLK), which will give you exposure to various companies in technology industry, such as Apple, Micorsoft, AT&T, Facebook, Verizon, Google, and more. You can also invest in an ETF that gives you access to all the stocks in an index, such as the Core S&P 500 iShares ETF. This ETF tracks the performance of the entire S&P 500 and gives you access to Apple, Exxon Mobile, and General Electric, among others.

4) Buy and hold

As hard as it may be, don’t panic when you hear bad news on a company in which you own stock. This is known as passive investing, or the buy and hold strategy. Try and resist the urge to sell all your positions unless there is a fundamental issue with the company management or revenue stream. If you have a well-diversified portfolio, you will most likely be able to limit your risk for large losses.

5) Set aside money each month

Set aside money each month that is ear-marked for investing, even if you don’t invest it right away. Maybe you don’t have enough money to buy 10 shares of Disney right now. You can save up in your brokerage account and make the investment when you have the necessary funds.

6) Make it part of your lifestyle

Whether is grabbing a coffee at the Dunkin Donuts drive thru on your way to work or cleaning your room every Sunday, your lifestyle is a series of routines. Investing for the future can be just another routine that is part of your lifestyle. Utilizing a mobile investing app, like DriveWealth, can you help you manage your portfolio and track its progress no matter where life takes you!

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3 responses to “6 Steps to Simplify Your Investment Strategy”

  1. Add maybe a 7th step: cross check your investment ideas with a quantitative tool, http://www.daattool.com, which will automatically find for you the strongest (and mostly dividend bearing) stocks in the marketplace.

  2. Rudy SMT says:

    I like it, simple and effective. Perfect for the unexperienced investor.

    I would add one more important point: every year rebalance your portfolio so to take advantage of undervalued asset classes. It helps to improve the rate of return.