Ways to help you get the most from your investments
For many investors they are frustrated by the lack of control they have in managing their assets. This is because many investment just must be watched over a long period of time and the investor often feel powerless to effect the results. Many investors are looking for ways to become proactive in their investing techniques. While this is true to some degree there are things that you can do that will impact your investments and make them more profitable.Here are some ways to help you get the most from your investments-
- Minimize your trading expenses-One of the biggest problems for over eager investors is that they trade to frequently causing their investing expenses to skyrocket needlessly.Frequent trading can substantially lower your long-term results due to commissions, fees, ask / bid spreads, and taxes. If you combine this with the knowledge that comes from understanding the time value of money, you realize that the results can be staggering. For those investors who understand that investing means time to bring about the real value they can substantially lower their trading expenses. Although it can seem counterintuitive, frequent activity is often the enemy of long-term superior results. Remember that sometimes the smartest thing you can do is nothing.
- Always measure your success by the underlying operating performance of the business-Savvy investors understand that they should hold small pieces of excellent businesses with the same tenacity you would if you owned the entire company. It is important to understand that over time, the operating results and the share price are inextricably linked. Simple common sense tells you that if a company cannot continue to exist as a viable entity, the investors will eventually lose everything. Without the ability to compete, any business eventually closes its doors. For further proof, you only need tolook at the venerable behemoths of the past that now lie in the junkyard of financial history.
- Be alert and attentive to your investments-To be a successful investor you will need to be alert to the possibility of new investments.Professional money managers may go to extensive lengths to find the next biggest opportunity for their clients.While you may not have to go such lengths the same basic premise holds true for your portfolio. By simply keeping your eyes open, you can stumble onto a profitable enterprise far easier than scanning the financialpages.
- Always allocate your capital by the opportunity cost-The answer to every financial question in your life should based upon your expected opportunity cost. This is true whether you are looking to buy a home or are trying to decide whether to invest in stocks or bonds. Understanding the rate of possible return versus the amount of expected return will help you determine whether or not this is the investment for you. Do not allow yourself to be swayed by the emotion of the minute whether it is fear, pride or embarrassment not to be investing in the "next big thing".The bottom line is that the opportunity cost of the investment you are presently invested in is the rate you are losing with what you passed up.
- Go with what you know-Too often investors are embarrassed by a difficult investment prospectus and go on to invest when they do not really understand what they are investing in.This can be a crucial mistake.Even large scale investors who have millions in capital will limit themselves to investing in products and companies that they understand.Failing to understand what a company does and the product they produce simply means that there is a better opportunity waiting for you to invest in.