DevDosh Ltd found a fantastically well written and extremely informative article just the other day by a chap by the name of Curt Stowers who is the founder of F5 Financial Planning.
Curt started the article by saying the question he hears most from his clients as a financial planner is: “So what’s the market going to do?”
Curt’s response is refreshingly blunt and straight to the point and above all else honest: “I don’t have a clue!”
Some people’s reaction to an answer of that sort of answer maybe one of ‘what sort of financial planner is he’ if he can’t give a better answer than that, Curt explains his response perfectly.
“My answer is to the question that I perceive is being asked: “Will the market go up or down in the short term?” And to that question, there is absolutely no known answer. My investment philosophy is based on the concept of efficient markets. The philosophy pretty much states that the market is priced fairly at all times and is based on all available information. This suggests that you cannot figure out the next “hot stock.”
Think about it this way, what’s the probability you have the magical piece of information no one else has that enables you to identify if a stock will go up or down? Put another way, what’s the probability you’re smarter than all of the other investors in the world at this point in time? Hopefully the answer to both of the above questions is obvious—the sum total of all of the information available far outweighs your knowledge or mine when it comes to the pricing of stocks in the market place”.
Curt believes the secret to investing is in a clearly defined and well laid out strategy, here is his rules to follow when developing an investment strategy.
- Know what you want to achieve, your goals and objectives, if you don’t know why your investing why invest at all
- When you know what your investment objective is you should decide what amount of risk you are prepared to take to achieve the goal and the associated returns.
- Determine how much risk tolerance you have, the amount of risk you can handle without keeping yourself in constant state of worry and affecting your sleep.
- Have the right diversity in your portfolio relevant to your risk tolerance, spread your capital between stocks and fixed income
- Determine the composition of your equity and fixed income portfolio. Within the world of equities there’s a whole collection of asset classes: large cap, small cap, international, emerging markets, REITs, etc. Within the world of fixed income there’s a whole collection of asset classes: short term, mid-term, long-term, government, corporate, etc. You’ll need to decide what percentage of each asset class you want to hold.
- Decide the particular holdings within your equity and fixed income portfolio. Once you come to a decision on the percentage of your portfolio to hold in each asset class, you’ll need to decide on the specific investment vehicle you want to use. You have a choice to invest in individual securities or pooled securities. You’ve got the choice to either invest in individual stocks and bonds or pooled stocks and bonds via mutual funds or ETFs.
In DevDosh Ltd opinion, the conclusion is to clearly define your investment goals then find the relevant investment vehicle.
THEN TAKE ACTION.
For more information on investment opportunities visit DevDosh Ltd today.