5 Smart Ways You Can Make Better Investment Decisions

Each dollar you invest is an opportunity to improve your portfolio’s performance. For some investors, making smarter investment decisions provides an opportunity to pursue short-term gains with higher risk portfolios. For others, intelligent investing can progress investments for the long-term with mitigated risk.

Whichever investment strategy you prefer, your investment decisions ultimately determine how well your portfolio performs in the stock market. By making informed investment choices that are aligned with your personal objectives, you can strategically reduce risk and improve your overall returns. To ensure your hard-earned money is working equally as hard for you, here are 5 smart ways you can make better investment decisions:

  1. Invest in What You Know

    Whether you’re a techie interested in FANG stocks or an compulsive shopper who loves retail, a great investing strategy is to start with what you know. By investing in an industry and/or business you know and understand, you can make better investment decisions as both a consumer and investor. If you work in a pharmacy, for example, you’re likely very informed about drug development. By investing in a healthcare company, you have an opportunity to leverage your knowledge about the industry to better analyze the company’s key strengths, weaknesses, competitors, and projections. In doing so, you can better predict future cash flows and make smarter investment decisions as a result.

  2. Don’t Get Emotional

    As Warren Buffett famously said, “the greatest enemies of the equity investor are expenses and emotions”. Truth is, humans tend to be irrational beings that are easily influenced by their emotions. When you invest emotionally, you’re likely to make rash decisions and abandon your investment strategy. A few examples of emotional investing might be selling stock based on a rumour it’s going to plummet, or investing in a business you know nothing about because it’s trending. Any form of emotional investing often results in regrets, whether it be from selling stock that soared the following day, or having to rebalance a (now) undiversified portfolio.

    The greatest enemies of the equity investor are expenses and emotions

  3. Determine Your Investment Strategy (and Stick with it).

    If you want to build a comprehensive portfolio (and not let your emotions dictate your stock picks), the trick is to create a thoughtful, in-depth investment strategy. While investment strategies vary, there’s one thing have in common: they’re personal to the investor. Your personal goals, financial commitments, risk tolerance, and salary projections should make up the backbone of your investment strategy. For example, someone with low risk tolerance, a minimum wage job, and no investing experience might create an investment strategy where they contribute 10% of their monthly paycheck to invest 60% in ETFs and 40% in bonds. Note that it’s important to regularly re-evaluate your strategy, because as we age, our risk tolerance, income, and financial goals will likely develop as we do.

  4. Evaluate the Company

    When it comes to investing, choosing and valuing stock is par for the course. However, many investors make the mistake of solely looking at the financial indicators and ratios of the stock pick and forget to evaluate another important factor: the company itself. It’s important to understand that the driver of success behind a stock symbol is the company, from its business model to its team of employees. Before you make any investment decisions, be sure to spend a considerable amount of time learning about the companies you’re interested in owning.

    If you don’t study any companies, you have the same success buying stocks as you do in poker if you bet without looking at your cards

  5. Start a Conversation about Investing

    There are plenty of reasons why being comfortable talking about finance and investing with the people close to you is important. For starters, you can learn from the experiences and insight of the people around you and collectively expand your knowledge. Similar to how much easier it is to stick to a workout regime when your friends are on board, you’ll likely feel more encouraged on your financial journey when your friends know about it.

We believe that more brainpower makes for better investment decisions. Taking that idea one step further, start an investment club with your friends to pool your money, knowledge, and resources together and invest collaboratively.

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