Start with the basics.

Focus on your goals and objectives. Write down your goals and the time frame for achieving them. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Your strategy may need fine tuning from time to time but if it has been well thought out, you shouldn't need to make major changes. Reversing your strategy or pulling out of investing completely will cause you to lose value and time - both key ingredients for achieving your goals.

Review your attitude

Towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. When markets become more volatile or uncertain you need to carefully assess how much risk you are taking and whether the returns reflect the risks. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk.

Stay diversified

Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. For example, investors who pulled their money out of shares in 2002 after the international share market decline and put it all into finance company debentures may be regretting that decision. When prices drop there are bargains to be had and astute investors will invest more at times when there is a market sell-off. If you understand what you are investing in, and have a good feeling for whether the return reflects the risk involved, you will make good decisions.

Don't sell in a panic

That way, you will crystallise any paper losses. The NZ sharemarket dropped by around 10% between mid July and mid August this year but has since regained its value and those who waited for the panic to settle were rewarded. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.

Evaluate all the options you have

This might mean getting more information from an expert who you trust. Don't get caught up in sophisticated investments unless you understand how they work, what the risks are, how you will make money out of them, and in what time frame. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options. Don't be swayed by glossy brochures and slick advertising from companies tempting you to invest money with them. Stick to the hard facts such as you would find in an annual report or investment statement and consider the trustworthiness and track record of the people involved.

Confident investors have a long term plan that they stick to, they do their research, they aren't swayed by emotions such as fear or greed, and they are successful at building wealth.

Article by Liz Koh

Liz Koh is a financial adviser. A copy of her disclosure statement can be obtained on request and free of charge by calling 0800 273 847.

Ph: 0800 273 847

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