What Happens Next: How Should I Invest My Money?
When it comes to investing, the pandemic era created a false sense of how to succeed. Rather than target high-growth opportunities, investors should look at a few different factors instead.
By focusing on what matters, investors are more likely to be successful when investing over the long term. And they’ll avoid any blowups that can happen to growth-focused investors who are in the market at the wrong time.
The first principle is diversification. Owning a variety of assets works in two ways. First, if any single investment blows up, the overall investor’s portfolio is protected.
Second, if an investment takes off, an investor will still have exposure to it in their portfolio and not miss out.
Next, investors should look for the best risk-adjusted return. That means that some investors will want to take on more risk, but others may prefer a safer path. Taking on too much or too little risk can be tougher for investors than failing to sufficiently diversify.
The next principle is to consider friction. That can include trading fees, if any, and the impact of taxes. Short-term trading generates high levels of taxes. Focusing on long-term investments comes with the advantage of a lower tax bracket.
Those taxes only kick in if an investor sells. So those who hold indefinitely can defer paying taxes, potentially for their entire lives.