How To Make Informed Investment Decisions

oday’s Key Takeaways

1. Understand your goals

2. Possibly consult a financial advisor

3. Have a well-defined investment plan

4. Research investments

5. Diversify your portfolio

6. Monitor your investments

7. Maintain a long-term perspective

8. Have an exit strategy

Making smart investments

Before investing your money, it makes sense to get informed. DYOR is the acronym you’ll see on social media. Do Your Own Research to increase your chances of achieving long-term financial success. You will sleep better at night knowing you did the work.

Here are a few things you can do to make more informed investment decisions:

1. Understand your investment goals: This is #1 because it’s the most important part. Before investing it’s essential to understand what you are trying to accomplish. Then, you can figure out how to get there.

This includes knowing your risk tolerance, time horizon, monthly cash flow, what you’re saving for, and overall financial situation.

An investment plan serves as a roadmap for your investment decisions. So, set goals, create a budget, and allocate your resources accordingly.

Check out the various retirement planning calculators and portfolio templates online. Click through to our blog for links.

2. Research the investment: Before putting a penny to work, research the company, asset, industry, and the economic conditions that may affect your investment. Evaluate potential returns and potential risks.

Remember, it’s risk vs reward. Safer investments are less volatile and generally produce a little income. Think about a savings account vs bitcoin. Each serves a different purpose in a portfolio, so they both have a place.

3. Diversify your investments: Don’t put all your eggs in one basket and plan on having a well-diversified portfolio. This is key.

Your investment portfolio can include a mix of stocks, bonds, real estate, and alternative investments like commodities, crypto, or hedge funds.

Diversification helps to spread the risk across different asset classes and sectors. This can help reduce overall portfolio volatility and the impact of underperforming investments.

4. Monitor your investments: Keep an eye on your portfolio, the industry, economic conditions, and any news that may affect its value. Pay attention to interest rates, the dollar’s relative value, inflation, GDP, and other economic indicators that can affect the performance of your investments.

Additionally, watch for natural disasters, political changes, and technological advancements. Google alerts are an excellent way to stay informed with minimal effort.

5. Have a long-term perspective: Investing is not trading. It is a long-term strategy. Making short-term decisions based on the news or your emotions is a sure-fire way to lose money.

Instead, focus on your long-term investment goals. Be patient and disciplined when making investment decisions. Have a plan and stick to it, especially during market downturns.

In fact, bear markets can be excellent opportunities for patient investors to buy trophy assets at a discount!

6. Consult with a financial advisor: All of the above can be quickly accomplished by meeting with a financial advisor. They can provide valuable insight and help create a customized investment plan that fits your needs and goals.

Financial advisors won’t likely know much about crypto and alternative investments, but can be of great value when developing a framework and financial plan.

7. Have a well-defined exit strategy: This is a plan for when to sell an investment, either because it’s reached its target price, or because it’s no longer in line with your investment goals.

Having a plan in place can help reduce your emotions and impulsive decisions when markets are volatile.

Buying is the easy part. Knowing when to sell takes discipline. I can’t tell you how many times I’ve watched a token 5x or 10x and gotten greedy, only to see it then fall by 75%.

A great strategy for crypto: sell 1/3 of your position on a triple. Get your principle investment off the table and let profits run. You are then playing with “the house’s” money and it will be much easier to remain unemotional.

To sum it up, making informed investment decisions means understanding your goals, possibly consulting with a financial advisor, having a well-defined plan, researching investments to evaluate the potential risks and rewards, diversifying your portfolio, staying up to date with economic and market conditions, having a long-term perspective, and having a well-defined exit strategy.