Secrets of Successful Investing

With all the turmoil in investment markets over recent months many investors will be asking if they have done the right thing by investing in shares, property or managed funds.  Let’s consider two fundamentals of investing.

Understand Investment Cycles:

Investment markets move in cycles.  They go up, they go down, and they may run flat for a period of time.  But if we look at the long-term performance of investment markets, they have historically trended up.

The secret to successful investing is to adopt a “counter-cyclical” approach.

Traditionally, human nature tells us to invest when markets are going up, and to sell when markets are in decline.  However, we need to change our mindset and invest when everyone else is selling (we pick up bargains that way), and sell when everyone else is buying.  Alternatively, and for longer term investments, we should be buying when markets are down, and just hold on to our investments for the long term.

Time in, not timing

Long term investing doesn’t involve chasing the latest investment fad. It involves making good sound investment decisions with the aid of professional advice, and then sticking to the plan, not jumping in and out of the market every time there is a change.

Everybody has heard of the October 1987 stock market “crash”.  If you invested $10,000 in the Australian All Ordinaries Index in June 1987, the value of the investment would have fallen to just under $7,500 in October 1987.  Many people were devastated by such a dramatic fall in the value of their investment, and they sold out at the bottom of the market, thereby crystallising their loss.  If the remained invested, they would have recovered their loss in around 2 years.  Had they continued to remain invested for the next 20 years (to June 2007), their original $10,000 investment would have grown to in excess of $80,000.

Source: Peter Kelly – Professional Investment Advisory Services – August 2008