Putting your strategy into action

Choosing what you want to invest in is the fun part of the strategy. As you’d have learned from the beginner course, you can invest in more than just stocks or shares. Assets such as exchange-traded funds (ETFs), property, gold and many others can form part of your portfolio.

In this part of the course, you need to start thinking about the kind of investments you want to make based on all the information you collated in the previous lessons.

Make a shortlist

Choosing what kind of investments to add to your portfolio requires research – both of your own risk profile and of the markets. You can find out your risk profile using free online calculators.

They work by asking you a series of questions about your age, life savings, investment knowledge and some of your habits, among other things. You’ll then get an assessment of how conservative, moderate or aggressive your risk profile is.

Knowing how much risk you’re willing to take on is important in deciding how much volatility you can accept.

At this stage, you need to work out which investments will give you the returns you need. To get to your shortlist, ask yourself:

• What asset classes do I want to invest in? These could include a broad-based index using an ETF, individual shares, bonds, property funds and commodities
• Is there a sector that interests me, or do I want to invest across multiple sectors?
• Are there certain companies I’d like to invest in?
• Am I willing to accept the currency risk from foreign investments?

While asking yourself these questions, you should include a list of reasons why your chosen assets are good for your plan. Why is Company X a better investment than Company Y? Which one will better help you achieve your goal? If the answer is ‘both’, you’ll still need to consider how much money you’ll put into each one based on their performance, level of risk and your desired returns.

In a situation where the companies are closely related – from the same sector, perhaps – you could be introducing concentration risk to your portfolio by investing in both of them. In such a case, consider selecting the best-performing one of the two or splitting your capital equally between them.

Remember to note down the average annual returns of each of your potential investments for the same period as your investment horizon. If you plan to invest for ten years, find out the average annual returns for each of the assets in the last decade.

Start investing and refining your plan

Now that you’ve given thought to many of the variables that could affect your investment outcomes, you may well be ready to get started.

One of the key factors in making an investment strategy work is keeping it consistent and not changing it too often. Not only can abrupt decisions derail your plans, but any changes you make in your portfolio may incur charges. It’s better to adjust your portfolio during set periods in the year – whether annually, bi-annually or quarterly. Less is better.

You can, for example, set aside one day per year to go through your strategy again and reflect on how it served you in the previous year. During your annual review, you can make any changes you deem necessary based on market and economic conditions. Make sure you log them in your strategy document so you have a record of them.

Changing your plan too often defeats the purpose of having one in the first place. You can think of your strategy as your North Star; it’s there to guide your journey and help you stay on course when the markets get choppy.

The next course will guide you through refining your strategy.