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Investing Principles: The Fundamentals Investors Need for Investing Success

Many investors may have their own principles of investing, and many of them have also reached their financial goals through their investing methods. However, there are some generic principles we think investors should know as the fundamentals leading to investing success.

Set goals

Establishing a financial plan based on your goals is the first and one of the most essential principles investors may want to follow. A clear plan with realistic goals that have taken personal circumstances and risk level into consideration can always act as a guide in helping determine and maintain your investment portfolio and help propel net worth. Investors should also review the financial plans at least annually, and make changes as their life circumstances change. In a study  of Americans over 50, successful planners—those who stuck with their plans—achieved an average total net worth three times higher than those who didn't plan.

Get Invested

As time in the market is key, investors may want to start saving and investing early and maximize what they can afford to invest to gain a larger growth in returns. However, don’t try to predict market highs and lows, as timing the markets is nearly impossible. This can also bring more risks to you.
To manage the risks, a diversified portfolio based on your risk tolerance is essential to protect you in a tough market. Investing too much in any single sector or asset class can result in major losses when markets are volatile, while recovery from those significant losses can take years. To build in protection, investors may use cash investments and bonds for diversification. These defensive asset classes had positive returns – significantly outperforming U.S. stocks during two recent market downturns.

Markets are uncertain, but fees and taxes are certain costs that you can minimize. Sometimes, fees can eat away at your returns, so what you should pay attention to is your net returns. For example, US$3,000 is invested in the S&P 500 Index every year for 10 years, then nothing is invested for the next 10 years. Over 20 years, lowering fees by three-quarters of a percentage point can translate to roughly US$9,000 in additional account growth.

Stay on track

A portfolio may stray over time if left unattended. Therefore, rebalancing your portfolio regularly to keep it aligned with your risk tolerance is important. There could also be market noise made by the press to sell advertising, but it is crucial to ignore the noise and stay focused on your plan. One critical thing to note is that progress toward your goal is more important than short-term performance, so we suggest investors to stay calm even when markets are not.
Markets can experience extreme fluctuation. Sticking to the basic investing principles can help you better manage your investment in your financial journey.

Important Disclosure
This material is issued by Charles Schwab, Hong Kong, Ltd. The information provided here is for general informational purposes only and has not been reviewed by the Securities and Futures Commission in Hong Kong.

Content provided by Charles Schwab, Hong Kong
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