The New Year is a great time to re-evaluate your portfolio, fine-tune your investment strategy, and learn from past mistakes. Here are three valuable but often overlooked investment strategies to get 2014 off to the right start.
No single investment performs well under all market conditions. If a big portion of your portfolio is concentrated in one stock and bad news causes its value to drop dramatically, your long-term financial security may be at risk. It may be difficult to sell an investment that has performed well, but it's too risky to become closely tied to the fortunes of one or two companies. Diversify your portfolio to help smooth the ups and downs.
Diversification is an investment strategy that spreads your assets among a variety of different securities, like cash, stocks, and bonds. That way, success isn't tied to one type of investment. But diversification doesn't end there. You also need to diversify the investments within each category. With bonds, for example, your money should be spread among securities with short-term, medium-term, and long-term maturities, which will preserve your income when interest rates change.
2. Focus on what you can control
As an investor, you can't control things like economic uncertainty, market fluctuation, interest rates, and inflation. Thankfully, you don't have to. Investment principles, not forecasts and predictions, are the key to portfolio riches. The most important investment strategies include the diversification of your portfolio, the quality of the investments you own, and how long you hold on to your investments. When the outlook is filled with ambiguity, focus instead on what you have the power to control.
3. Keep your emotions in check
One of the most important investment strategies you can employ as an investor is to not get distracted by your emotions. Investment decisions are often rushed by emotion, especially fear or greed. Just because a particular stock has been performing well for a few years and all the news is rainbows and unicorns, you shouldn't rush into it. Warren Buffett once said: "Success in investing doesn't correlate with IQ. ... What you need is the temperament to control the urges that get other people into trouble in investing."
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