Four principles of investing

Create clear, appropriate investment goals

The investment process begins by setting measurable and attainable investment goals and developing a plan for achieving those goals. An appropriate investment goal should be measurable and attainable, success should not depend on excessive returns or unrealistic saving or spending requirements.

We believe investors should employ their time and effort up front, on the plan, rather than in ongoing evaluation of new strategies. Developing a plan is a simple step that can pay off tremendously – because only those who have a plan can stick to it.

Develop a suitable asset allocation using broadly diversified funds

A sound investment strategy begins with an asset allocation that is suitable for its objective and based on reasonable risk and return expectations. By using diversified investments, investors can limit their exposure to unnecessary risks.

Both asset allocation and diversification are based on the idea of balance. Since all investments involve risk, investors need to manage the balance between risk and potential returns. Asset allocation and diversification are powerful tools for achieving an investment goal.

Minimise cost

Investors can‘t control the markets, but they can control how much they are willing to pay for their investments. Every Franc that investors pay for management fees and trading costs is one Franc less in potential returns. The key point is that – unlike the markets – costs are largely controllable.

Costs are the main reason why the majority of investors in any given market trail the overall market. In any market, the average return for all investors before costs is, by definition, equal to the market return. However, once you deduct the numerous costs incurred, the overall investor return is lower than the market return. Our research shows that in the past, cost-efficient investments tended to outperform more expensive alternatives in the long term.

Maintain perspective and long-term discipline

The asset allocation is a basic building block of any investment strategy, but it only works if you stick to it over time and through varying market environments. And investing evokes emotion that can disrupt the plans of even the most sophisticated investors.

Some investors may find themselves making impulsive decisions or, conversely, becoming paralysed by fear, unable to implement an investment strategy or to rebalance a portfolio as needed. Investors can avoid this behaviour by defining an asset allocation and sticking to it. By regularly rebalancing to your original asset allocation rather than chasing market performance, you can help to ensure that your portfolio remains aligned with your goals and your appetite for risk.