Like the game of football, investing requires a clear understanding of the objective as well as a process or strategy to attaining it. These steoswill guide you in crafting your unique strategy.
There are two parts to every battle, goal, or aspiration. The first part is knowing what it is that you want to achieve with clarity, and the other is knowing how you want to pull it off – these things work hand in hand. Think of a football pitch for a second.
A well laid out process without a Goal Post is tantamount to merely running around. In the same vein, knowing the objective is the Goal Post is not enough; you need a clear formation strategy to be able to win. This is exactly how the business of investing works.
You need to first have a clear understanding of what your investment goal is and then create a strategy on how you can attain it. Your strategy would serve as a guide on your investment journey, helping you determine your priorities.
In crafting your strategy, also note that what works for you as an investor will not necessarily be appropriate for someone else.
Here are a few simple guidelines to ensure that you create your own unique investment strategy:
Step 1: Know What You Want
The first step in crafting your investment strategy is to know exactly what you want. What is your investment goal? What is your mission? Is it to build wealth in the long run, to build a retirement plan, or for sustenance? Are you interested in impact?
For example, you could invest in the agricultural industry not primarily because of the profits but because you are passionate about increasing food supply. Are you investing to leave periodically (buying only to sell in a few years) or are you in it for the long term? The first step to creating your investment strategy is to set your goals. It is then that you begin to work towards it.
Step 2: Define Your Timeline
The best advice with time is that you invest for the long run. Long term investment are great for building wealth, building a retirement plan, or for even long term needs like your kids’ education.
However, you are the best person to come up with your timeline based on your needs and preferences. In defining a timeline, it is also important to define how much time you can spend actively investing and monitoring your investments consistently. You don’t want to invest once and be done with it for months. Consistency is always better.
Step 3: Know Your Options?
There are investment plans like 401ks that are common in countries like the United State and are unavailable in Nigeria. As such, you need to know what your investment options are.
From stock investments to bonds and mutual funds, write out all the possible options you have. Think in terms of geographical location, understanding, and your investment values. It is important to do this because when you need to diversify your investments, you would come back here to shop for options.
Step 4: Define Your Niche/ Sector/ Investment Vehicle(s)
Beyond knowing your options, you need to determine what investment vehicles you have chosen to invest in, in a period. It is important to select these niches with the idea of diversifying your investments at the back of your mind.
While there are investors who focus on specific sectors for biases and sentimental reasons like investing in businesses geared towards solving the same problem, spreading is always a better option.
Step 5: Define Your Risk Tolerance
Risk is a key part of investment. However, different strokes work for different folks. If you are willing to take the biggest risks to obtain the greatest gains, your investment strategy would be more aggressive – you will be the striker aimed at goal-scoring above anything else.
However, if you are risk averse, it is better to go after the investments that, while not giving the best interests or dividends, will offer you peace of mind. However, that being said, it is always better to invest smartly and that involves diversification, hedging, and all aspects of risk management. You really don’t have to risk losing all your funds. Your risk appetite will however, help you create your investment portfolio.
Step 6: Diversification: What are the components of your portfolio?
The makeup of your portfolio is largely determined by your all the other things listed above. For one, a main reason for diversifying in the first place is to achieve a safe risk balance.
You want to be able to offset high-risk investments with low-risk investments. Another way to do this is through the weight of your investments. You can invest smaller amounts in vehicles that are high risk and larger ones in safer vehicles.
The goal is ultimately to diversify your assets and spread your risks. Time also matters. If you are investing for the long run, you can afford to take more calculated risks and if you want it for the short term, you can only invest in assets that potentially safeguard your funds or yield consistent dividends or interests. It is important that you take out the time to plot this.
Step 6: Know Your Investment Style.
Are you a passive investor or an active one? Do you want to invest on your own or be part of an investment team? Knowing your investment style in relation to how you want to invest as well how you are capable of investing.
You might want to be a lone ranger but if you are not willing to put in the required time and effort in learning and growing, you will end up with nothing. Group investment methods might be better for you and you can share knowledge with others.
Step 7: Make Room For Taxes And Costs
Every investment has its cost implication; if you’re not careful, the costs associated with investing will eat into your investment portfolio. This does not necessarily mean you should invest in only cheap assets.
However, you have to be aware of these costs so you can make provisions for them. It is also important to understand the tax implication of any investment. Dividends are taxable.
Step 8: Create A Variance Analysis System/Measurement System
It is not enough to create an investment strategy, you have to monitor its progress. In measuring the effectiveness of your investment strategy, you can set benchmarks that are geared towards your investment goal.
These benchmarks might be based on market indexes or based on your investment growth over time. The goal is measure progress with respect to market volatility, timeframe, and as many other factors as you deem fit towards determining whether you need to tweak your strategy or if there are lapses to cover.
However, in tweaking your strategies, ensure that you stick to the overall objective and that you are not being dissuaded by market movements.
With these steps in place, you are sure to have an awesome investing experience.
Written by Lawretta Egba.
