Start small but start now

As the Chinese proverb goes,

“The best time to plant a tree was 20 years ago. The second-best time is now”.

You are likely looking back now, thinking of the opportunities missed in the market over the last few months and what could have been. Stop dwelling on the past, put steps in place so that history doesn’t repeat itself because if you don’t, an older, more wrinkled you will be cursing the present you for your inaction.

So, where do I start?

Of course, it is not as easy as just throwing your money into the stock market and coming back in 20 years to collect your winnings, if it was, I’d be out of a job. The point I am trying to make is, good investing isn’t about who appears wealthiest or searching for the highest one-off return; it’s about earning solid returns that you can stick with for an extended period of time.

In order to build a portfolio that you are willing to hold through the inevitable pits and troughs of various investment cycles; you will need to have an investment plan that suits you.

Clarity around your investment plan

Your plan, your needs, not anyone else’s. The more understanding you have around your own investment needs and goals, the higher the probability of you sticking with it through short term fluctuations as you will be able to focus on your underlying longer-term goal as opposed to the current volatility.

• Risk tolerance:To create an appropriate investment plan, you will need to firstly ascertain your own risk tolerance. (the level of risk you are willing to take). Overestimating this will have you jumping ship at the least opportune time, and underestimating this will likely leave you disappointed with your portfolio returns over time. Everyone is different so take some time to realistically analyse what range of losses you can comfortably be exposed to both physically and mentally. It is crucial that you don’t overlook the latter, just because you can physically survive a significant decline in your portfolio doesn’t guarantee that the mental anguish from watching your assets decline won’t spur you into unnecessary action, ultimately deviating from your original plan.
• Time Horizon:Figuring out your own time horizon is vital. The academics of the world will tell you that starting your investment portfolio when you are about five years old and only touching it moments before your death is the most optimal way to build portfolio wealth. Of course, theoretically, through the magic of compounding, they are correct, but this approach isn’t exactly practical. It doesn’t lend itself very well to our ever-changing goals and needs. College, starting a family, buying a house, changing career, retirement, all these are financial milestones that will invariably adjust your financial situation, so be aware of your long-term financial plan but be mindful that these goals may need to be adjusted somewhat as your priorities change along the way.

Creating a diversified investment plan that is conducive to you personally will ultimately put you in the position to achieve a much more attainable and probable wealth target. Given the choice, I know I would choose financial freedom in reality over unprecedented riches in my dreams, so for now, focus on the prior instead of wasting all your time daydreaming about the latter.

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