At Vanguard, we think four simple principles can improve your chances of investment success.
At Vanguard, we believe that four simple principles will help most
people to improve their chances of investment success...goals,
balance, cost and discipline.
Let’s look at goals first...We believe that successful investing begins
by setting measurable and attainable personal goals. It could be
anything. And once you know what it is you want to do.
How much money do you need to achieve your goal?
How many years do you have to reach your goal?
How much risk can you bear along the way?
How much can you invest at the start and regularly from then on?
Now what about balance? What are the right investments you need
to reach your goal? Shares are risky but offer the potential of higher
returns over the long-term. Bonds, a type of loan, may offer lower
returns but are historically steadier.
So you can use these differences to build an investment portfolio
that is best suited to helping you achieve your investment goals.
Okay, now let’s look at cost. Differences in investment costs can
seem small.
But when they are compounded over many years, these differences
can take a significant toll on your wealth. Something else to
consider – in investment, more expensive does not always mean
higher quality. On the contrary. On average, over time, higher cost
funds will tend to have lower returns.
And finally, discipline! Investing can provoke strong emotions...Fear,
greed, anger, excitement. We can all too easily give in to impulsive
behaviours.
But in our experience, investors are most likely to be best served by
sticking to their plan based on our four investment principles...
goals, balance, cost and discipline.
Following these four simple principles will help most people to
investment success.
Think about goals
Having a goal in mind can help when it comes to picking the right investments. This could be anything from saving for retirement, to buying a home.
Are you looking for short term security or long term gains? How much growth do you need to reach your goal? Answering questions like these can keep you focused on building a portfolio that’s right for you and your needs.
Stay balanced
Investing in the right mix of shares and bonds could have a bigger impact on your returns than anything else you do.
It’s all about finding the right level of risk and reward. Shares typically give you a higher return over the long term, but are riskier. Whereas bonds are more stable but offer lower potential returns.
Keep costs low
Making money from investments isn’t about predicting the future, because the future is unpredictable. Instead you should focus on the one thing you can control – costs.
By keeping your costs low, you keep more of your returns. Those savings can really add up, especially in the long term.
Be disciplined
Sometimes our emotions can lead us to make simple mistakes when investing. Like buying the latest hot investment when prices are high then panic-selling when prices drop – the opposite of what common sense says we should do.
The most successful investors are often those with discipline. Those who invest for the long term and don’t tinker with their portfolios too much.