How strong is your investing education? Here are some tips you might not know about to cut your risk
Early on, you may learn a few things about investing, and form some opinions. But your investing education really begins after you start to recognize just how much you don’t know (isn’t that how all real learning begins). When you reach that point, you’ll start to look at a much wider range of data and indicators. But, more importantly, you’ll start to pay more attention to investment selection and portfolio structure, and far less to deciding when to buy and sell.
But until you begin that process, you run a big risk of zeroing in on a narrow selection of data that’s irrelevant in the current market, or putting your faith in a single indicator that at best works intermittently.
You can always get lucky, of course. You may zero in on the one point that is most telling for that point in time. But you are more likely to choose an indicator or narrow slice of data that will lead you to miss out on a low-risk opportunity, or lose money. That’s due to simple arithmetic. There are many indicators to choose from, along with a variety of ways to interpret them. At any given time, only a few of the many combinations will lead to profit-making decisions. The same idea applies to the way you sample the data.
Investing education: Financial investing tips to cut risk and increase profits in your stock portfolio
- Think like a portfolio manager
- Look beyond financial indicators
- Hold a reasonable portion of your portfolio in U.S. stocks
- Give your investments time to pay off
Investment education: Focus on investment quality and diversification
Early in their investment careers, many investors pick up on the idea that the best way to control stock-market risk is to figure out which way stock prices are headed next, then invest accordingly. This, though, turns out to be much harder than it sounds. It’s easier—and more profitable—to focus on investment quality and diversification.
You’ll do even better if you follow our three-part Successful Investor strategy.
Here’s a simple refinement you can add to our three-part strategy. It will improve your results all the more. Buy stocks regularly during your working years, regardless of the market outlook. Sell stocks gradually in retirement, when you need money to supplement your income from dividends and other sources.
Investing education: A diversified portfolio is a smart decision
A diversified portfolio consists of investments spread across the five main economic sectors as well as a range of individual stocks.
Most investors should have investments in most, if not all, of the five sectors. The proper proportions for you depend on your temperament and circumstances.
Conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high and generally secure dividends.
More aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks. For example, more aggressive investors could consider holding as much as, say, 25% to 30% of their portfolios in Resources. However, you’ll want to spread your Resource holdings out among oil and gas, metals and other Resources stocks for diversification within the sector, and for exposure to a number of areas.
Investing education: Seek these types of high-quality, more safe investments
At TSI Network we feel that stocks that have been paying dividends for over 10 years are some of the safest investments you can make. Dividends are a sign of quality and a company’s financial health. Types of stocks that we consider to be safer investments include Canadian banks and utilities.
There are also a host of other key indicators to determine if a stock is a safer investment, like management integrity, its growth prospects and its stock price in relation to its sales, earnings, cash flow and so on.
For a true measure of stability, focus on those companies that have maintained or raised their dividends during an economic or stock-market downturn. We think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong growth prospects.
Researching and building your investing education can be time consuming. Do you think it’s a worthy way of spending your time, or do you find it better to try and replicate the investing pursuits of other well-known investors instead?
Investing is always a gamble, but can smart investors put the odds in their favour, or is it just luck? What would you tell a young investor?
