There is no secret sauce, working with the right planner gets you to focus on what is important to you, and pairing that with investments that accomplish that goal. For most, the stock market is a marriage of two key ideas, liquidity and return and that’s why people use it. But a good investment is something that predictably meets your needs.
So here are a few key concepts to familiarize yourself with early, which will make the rest of investing easier.
Diversity – finding a balance of different asset classes, market caps, currency foundations, economic indicators is important to greeting a healthy return. It means that while some parts of the market are selling off, you own the parts that are doing well. It means that as broader economic conditions change, you already own the benefactor of that change. Diversification comes with lower returns in any given year, but greater returns over time.
Allocation – most of your returns can be predicted by your asset allocation. Simply put the more equities you have, the higher your returns will be, this will also come with volatility. Find an allocation that meets your needs and stick with it. Those that do, will generally outperform their stock-picking peers.
Cash Flow – this is why we invest, predictable inbound cash from investments solves a lot of problems for people. A source of income that doesn’t rely on the hours you commit is a fantastic asset to own. Know how much money the company will make per dollar you spend to buy it (this is P/E and P/S numbers) then know how much is headed your way in the form of a dividend and buyback (dividend coverage ratio).