7 Investment Principles that Investors Can Apply


Investment Principles that Investors

7 Investment Principles that Investors Can Apply. Investing is one way to achieve financial freedom in the future. After setting up a savings fund for emergencies, potential investors can immediately invest for that purpose.

In order for investment activities to bring maximum results, there are 7 main principles that can be used as a reference, especially in making the right investment in the long term. The 7 main principles in investing have been compiled by Syailendra Capital in the Market Insight Report.

1. Early Investment

Investors who invest earlier certainly bring greater returns compared to investors who have just invested. As an illustration, Investor A and Investor B each invest 3 million each month for 5 years (totaling IDR 180 million). Investor A who has invested 5 years earlier than Investor B will produce +146% higher performance than Investor performance or a difference of IDR 62 million.

2. Avoid Market Predictions

2021 has been a volatile time for the stock market. So many investors want to try to do market timing. However, this step is not easy. The reason is, if investors lose the best 5 to 20 days in the stock market, they will bear a sizable loss.

3. Ignore Distractions

Disturbances in investing can come from anywhere, for example coming news in the media that often spreads fear among investors. Therefore, it is important to ignore these kinds of distractions.

In the last 20 years, the stock market has gone through many events that caused price movements up and down. However, over the long term, stock market movements continue to increase, which bodes well for investors using long-term investment strategies.

4. Effectively Allocate Assets

The next principle is not to fully invest in stocks. This means that investors can get returns through effective asset allocation.

For example, you can allocate investment assets with 30% stocks, 60% government bonds, and 10% money market. But given the much lower risk, the returns will be in line.

5. Diversify

In addition to effective allocation, investors also need to diversify their portfolios. In this case, investors can take advantage of differences in the performance of each asset class for certain periods.

Just so you know, it's nearly impossible to predict which asset class will perform the best in any given year.

6. Pay attention to the Recovery Period

Investors need to pay attention to the recovery period of their investment portfolio. On average, an undiversified portfolio A, with an asset allocation of 100% shares, takes 25 months to recover or to its previous peak.

Meanwhile, diversified portfolio B only takes 13 months. So that investors who pay attention to this recovery period will avoid deep losses.

7. Balance the Portfolio

Balancing the investment portfolio needs to be done regularly or rebalancing. Because as mentioned above, market movements can never be predicted.

For example, a portfolio that initially had a moderate risk level in January 2009 with an allocation of 50% stocks and 50% bonds may change to a high-risk portfolio in 2019 with an allocation of 68% stocks and 32% bonds if investors do not rebalance.

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