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Three Steps for Successful Investing

Three Steps for Successful Investing

December 16, 2020

Successful investing starts with understanding your needs and understanding the characteristics of the investment being considered. That informs your decision whether a particular investment is suitable for you.

A critical component of any good investment strategy is not making mistakes.

A simple three step process can be your formula to successful investing. The goal is to have better investment outcomes combined with a better investment experience.

One. Know yourself.

Whether you self-manage or have a financial advisor, the starting point is understanding yourself.

What are your ultimate objectives and how comfortable are you with normal investment risk? What risks should you consider taking based on your personal and financial circumstances?

What is your timeframe? Is this money needed for an expensive family vacation later this year?

Is this money going to pay for your children’s post-secondary education that starts in two or three years? Or is this money going to help you prepare for a comfortable retirement that is a decade or more away?

Two. Understand the investment.

Investments have many different characteristics. These include expected returns, anticipated volatility, liquidity, risk, and costs.

You are buying an investment. Use the same skills as when you are buying a house, a second property, or any other significant asset.

What are the pros and cons of a specific investment option?

Before you can make in an informed decision, you should understand exactly what you are buying.

Three. Suitability

The final decision is if a particular investment is suitable.

This will rely heavily on the first two steps of understanding yourself and the investment being considered. The better understanding of the first two steps will make the decision both easier to make and better for you.

It is perfectly normal to have an individual that should be investing. It is also perfectly normal that you might be considering an investment with extremely good characteristics.

The issue is whether this “good investment” is good for you.

Know yourself, understand the investment and then determine if it is suitable.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.