If you want to build up a securities account, you should keep in mind a few rules that significantly improve the chances of success.
Many private investors have large sums on savings accounts, which are low-interest rates. While you are well aware that equity investments are better in the long run than bonds or money in the savings account. And they also know that after a course correction the prices will eventually rise again. This is where the asset management firms are coming with great support.
Still, many investors make the same mistakes over and over again: they sell at falling prices and only buy when the prices have already made up for a large part of the losses made. With falling prices, they are too strongly guided by fear of loss and, with rising prices, by greed.
Professional investors, on the other hand, use periods of low prices to increase their stock levels. Of course, they too cannot predict the future development of stock prices. But they follow their investments strategic and tactical considerations.
Define and adhere to the appropriate strategy
Before investing, you have to be clear about your personal investment horizon and your own risk capacity. Because the longer one waives the money invested and the better one can deal with price fluctuations, the greater the share may be.
Here are questions to answer such as: Are larger acquisitions planned? If so, in which period? Do I need income from my assets to finance part of my living expenses? Am I prepared to accept temporary losses? The answers to these questions can be converted into a personal investment strategy.
The investment strategy states what proportion of assets may be invested in certain asset classes such as equities and bonds. The strategy is the deciding factor for the success or failure of investments. Private investors often pay too little attention to it. Investors should review their strategy on a regular basis, but not give up because of temporary stock market developments.
Once the investment strategy is in place, it’s about selecting good titles. For assets up to about 500,000 dollars recommend funds. They also allow private investors to spread their money over a large number of securities.
Diversification significantly reduces investor risk
A rule of thumb is that the share of a single stock or bond should not exceed 5 percent of the total investment. Also important is the distribution of investments across multiple countries and sectors such as the financial, consumer, and chemical sectors. German investors often overweight German stocks, leading to a lump risk. Additional diversification opportunities are offered in gold, commodities, or real estate investments.
Stocks are best staggered
In order to reduce the risk of an unfavorable entry point, staggered entry is recommended, especially for equities. It is conceivable to enter at least three to four equal-sized stock packages at intervals of three months each. For example, you can make additional purchases dependent on price fluctuations: If the value of a stock drops by 10 percent within three months, you buy another share package regardless of the time. Such a systematic approach largely eliminates emotions such as fear and greed