The key to getting your money’s worth from investments

Why are some investors so incredibly successful when others struggle for years and never make very much?

Luck has something to do with it, but not everything. Similarly, having more money to put into it in the first place helps, but there are real rags-to-riches stories out there.

What really seems to distinguish the most successful investors from the rest is that they develop styles that are perfectly suited to their personal talents, needs and circumstances. Here, we look at some of the ways that you could do the same thing.

Know what you want

It may sound odd to ask what you want when you go into investing. You want money, of course – preferably a lot of it! The question is, how soon do you want that money? Are you prepared to wait longer to get it if at the end of that time, you can have substantially more?

How much money are you prepared to risk losing on the off chance of making large amounts? The answers to these questions will depend on your end goal.

Investing for some people is just a way to make a bit more from savings than could be expected from a bank. It can be a way to generate some short-term income from dividends or generate quick profits from rapid trades.

Alternatively, it can be a long-term strategy aimed at building up the funds you need to give your kids a private education or pay for your retirement. Your strategy will need to fit these priorities.

Choose the right investment types

When you’ve set your goals, you can more easily select the types of investment that will suit you best. Most investors ground their portfolios in stock trading, which is very flexible and offers both short and long-term, high and low-risk options but often requires ongoing attention and research.

Bonds offer a very low-risk, long-term option, and as for property, there’s a reason why people use the phrase “safe as houses”, but neither of these is very lucrative in the short term and you’ll usually need at least three properties before you’re able to generate any income from them.

If you’re looking to make money more quickly and you’re willing to tolerate a higher level of risk, you can find helpful information on forex trading for dummies to help you get up to speed on the foreign exchange market.

You can also try buying shares in start-ups, where you’re taking a chance on companies that might not make it – but if they do, you can see your assets grow dramatically.

Balance money and time

Most experts are agreed that successful investing usually involves building up a balance of different investment types. However, there’s another kind of balance you need to keep in mind, and that’s the balance between your time and money.

If you’re retired or have a lot of time on your hands for other reasons, you may want to look after your assets for yourself. If, however, you’re a busy person who can make more money doing other things with your time, and if you’re investing over £125,000, it may make more sense to hire a professional investment manager.

An alternative option is to invest along with a group of friends and share asset management duties, either by pooling funds or by maintaining separate but very similar funds and portfolios.

Be ready to build on it

What do you do with your investment income? Many people just take it out and spend it, but if you don’t strictly need to, this is an approach that costs you money in the long term.

Reinvesting your profits enables you to benefit from compound interest so that not only your money but also your capacity for making money increases over time. 

Warren Buffett has always said that the secret to his success is simply buying up stocks, waiting for them to mature and then reinvesting what he earns from them. This approach may not be very glamorous, but it’s as reliable a way to grow your assets as you’ll find anywhere.

Ultimately, the key to success in investing is to keep a level head and be willing to apply yourself. There are all sorts of charlatans out there promising that their systems will let you get rich quick – as if they would be sharing them if that were true.

But in the real world, the only way that you can be sure of getting your money’s worth is to do your research, make considered choices, and exercise patience. It may not be the kind of secret that hits headlines, but it works.

Photo by Austin Distel