How to make good investment choices

We all like making good investment choices when it comes to our money, but is there an easy way of going about it?

The helpful blog, that newspaper article, or an expert tip from an investment magazine, are all useful research when it comes to successful investing, but there’s one more source that you should milk as an invaluable research tool – an investment journal.

According to experts, your personal history of making decisions is likely to hold more data, more information, more opinions, more successes and more failures to learn from than you will gather from reading any blog, book or annual report.

So, where do you start when you’re looking for inspiration?
Consistently updating your journal when you review your transactions will help you keep your investment strategy on track…

1. Keeping an investment diary
Get a notebook, folder or spread sheet and treat it like a diary that you can refer to quickly and easily.
This will be your central hub to record any investment decisions you’ve made, why you made them, what you based your decision on and what the outcome was.

2. Rules for investment
In time, you’ll be able to create a list of dos and don’ts based on what has worked for you in the past. By identifying investments that were profitable, and looking at what they had in common, you may find key indicators of a company’s performance over time that are both consistent and above the industry average.

Alternatively, you could find that decisions you made because you received a ‘hot tip’ at a party resulted in disappointing results, so you’ll come to understand how to make good decisions in the future.

3. Watch the potential
Keeping an investment journal will also help you monitor a list of potential investments. This watch-list will help you build your investment rules, as well as your confidence.  However, you should not base your decisions on ‘virtual’ stock trading games or paper trading, as these are likely to cloud your judgement in actual investing.

4. Build your investment strategy
Consistently updating your journal when you review your transactions will help you keep your investment strategy on track because it will help you remember why you bought or sold an investment, and provide research and valuable information when you want to sell or buy more.

5. Notes to self
Ultimately the most useful information in your journal will include notes like:

  • Why you bought or sold an investment
  • Your entry and exit strategy
  • Charts of share prices you are watching
  • Dividend yields when purchasing shares
  • Rental yields when looking at investment property purchases. And, of course, there is no substitute for getting professional advice, so back up your method with sound advice from a professional adviser.

If you’re looking for help with your investment portfolio, please contact a financial adviser.

(source: Colonial First State)

Like This