2020 was an incredibly interesting year in investment and a volatile one for the stock markets. The global pandemic made the investment space more dynamic. 2020 certainly took us on a wild ride but there is a lot we can learn from this memorable year in the markets. Below are a handful of lessons from 2020
Don’t take the media’s word for it
People often felt the need to be abreast of all the latest financial news. With news of the price of shares crashing in the stock market it created a lot of anxiety around. However, listening to the financial media can hinder your ultimate goal. The media’s job is to sell advertising, not to help you reach your financial goals.
Even if all the downturns and uncertainty drive you crazy, step away from the sensationalist news. The number one predictor of long-term investment success is investment behavior, so teach yourself the discipline not to act on every little thing you hear on the news. Turn off your notifications and guard your time instead.
Don’t react to downturns
The market is not static so it is important to note that there will be both upward and downward turns and. this leads us to the next
Always think long term
You don’t become Warren Buffet by investing only in the short term. Time is a huge factor in investment and it should never be downplayed. Invest in companies with healthy going concern and sit back and time take its course as you monitor your investment.
Knowledge is important
Investing requires specialized knowledge about finance and different types of asset classes. Experience is also very important in investing, as an investor who has seen a number of economic cycles can, in general, navigate different types of situations better than a novice investor.
Benjamin Franklin nailed it: “An investment in knowledge pays the best interest.” It certainly does.
Also don’t invest in what you don’t not understand. Read it up, get all the information you can get before you take on that investment risk. If the return on investment is unbelievable then it most likely is.
Take risk calculated
Making decisions based on emotions is extremely dangerous especially when it comes to investments. Some investors are high risk investors while others are low risk investors. But the truth is there is no investment without risk, it all just depends on your risk appetite and the higher the risk the higher the reward. The risk of the investment may be high or low but it must be calculated.
Don’t let FOMO get the best of you.
There will always be a new craze or a new trend but when you understand your motive and think about the impact of your investment on your financial plan it will guide you. Don’t let it derail your long-term strategy.
It’s bitcoin now but you want to be sure that you understand it before you jump on it and not just because it works for other people. Also crosscheck the alignment of your investment plans with that investment platform before you jump in
Always have emergency funds
Investing is a rewarding venture but you must prepare ahead for unforeseen circumstances that may be outside your control. Eventualities such as the advent of the 2020 Covid’19 pandemic.
Emergency funds should not be invested in the long term because eventualities can not be predicted and you don’t want to be left high and dry when you need money to cover unexpected expenses. What’s worse than having to beg and borrow when you have a lot of money locked up somewhere?
What were your major take outs from this post? Let us know!