5 INVESTMENT STRATEGIES NOT TO BE MISSED

There are some fundamental rules that investors need to pay attention to regardless of the size of their assets. Keep in mind that the simplest strategies are often the most effective. They are less risky and often yield better returns. Those wishing to invest are immediately faced with a series of questions. Of course, there is a big difference if the capital you can invest amounts to CHF 5,000 or several hundred thousand francs. If you have small assets, it is not reasonable to invest in individual stocks: transaction costs are too high, diversification is insufficient. Instead, it is preferable to invest in funds. In this article we have summarized five investment strategies for you to choose from to invest your money successfully: Strategy 1: invest from an early age and reduce costs Strategy 2: diversify and stay on course Strategy 3: rebalance the portfolio from time to time Strategy 4: stagger purchases Strategy 5: contain losses STRATEGY 1: INVEST FROM AN EARLY AGE AND REDUCE COSTS Time is a precious ally for investors. The earlier you start investing, the stronger the effect of compound interest will be. An amount of CHF 15,000.– invested at the age of 20 transforms with an average return of four percent into assets of around CHF 88,000.– upon reaching the age of 65. If, on the other hand, you are even more optimistic and expect an average return of six percent, which is quite possible if you invest in equities, your final assets can even reach CHF 206,000.–. The broad time horizon not only amplifies the effect of compound interest but also reduces the risk of losses associated with high-risk investments. From an investment horizon of 35 years, statistically, the probability of suffering losses is very small, while the possibility of obtaining substantial gains is relatively high. The rule of thumb suggests that a time horizon of at least ten years should be planned for investments inequities. In addition to time, cost-effective investment products are also allies of investors. Investments are also associated with the payment of commissions. For this reason, it is important to check costs carefully. Always have financial product vendors and wealth management consultants disclose all costs and fees, clearly explain them and explain why they are fair and appropriate. STRATEGY 2: DIVERSIFY AND STAY ON COURSE It is difficult to predict not only the overall trend of the stock market but also and above all that of individual stocks: this is why you need to diversify your investments. Don’t just buy a few stocks – this strategy can have disastrous results. It is important to be aware that risks are inevitable, even when you leave your money in your savings account. The deposited amounts bear practically no interest and are exposed to the risk of being affected by inflation and any administrative expenses, such as bank deposit fees, etc., which cause them to decrease. However, the fact that risks are omnipresent should not lead you to take a bold attitude and make you aspire to very high returns. In fact, the higher the returns, the greater the risks. Set yourself a realistic goal. A return of four percent after inflation is a fully achievable long-term goal. Once you have established the right mix, you must remain faithful to your strategy: at first, difficulties do not revolutionize your plans, otherwise, you will have to face unnecessary transaction costs. Don’t go crazy chasing the news at the last minute. Selling stocks when prices have peaked and bought them back when prices fall is every investor’s dream. However, transforming it into reality is almost impossible. It is, therefore, better to opt for long-term investments. If you choose this path, it is essential to be able to withstand the large fluctuations of stocks or simply ignore them. Investing over a long time horizon is also important because the high long-term returns on equities are often attributable to a few days of strong price increases. Those who have never stopped investing in European equities since early 1999 have practically doubled the amount available today (based on the MSCI Europe stock index). However, the good performance is almost exclusively attributable to the ten best trading days recorded in this period. It is sufficient not to keep your investment in the few days of the market with strong growth because the general return will be reduced considerably in the long term. For this reason, most of the time it is good to keep the investment for an extended period. STRATEGY 3: REBALANCING YOUR PORTFOLIO FROM TIME TO TIME Capital gains and losses not only generate stress but also create an imbalance within your strategy based on the correct investment mix established in the preliminary phase. This is why it is important to rebalance your portfolio from time to time: by doing so, the percentage distribution of your investment assets will remain constant. EXAMPLE Let’s assume your strategy is to invest half in stocks and half in bonds. Proceed to select your investment products accordingly. If stock prices rise while bond prices fall, the share of equities can easily add up to 75 percent of the portfolio’s overall value. At this point, it is necessary to sell shares and buy bonds to restore the original distribution of the investment assets. Conversely, this action must be taken before stock prices fall and bond prices rise. This re-weighting of investments (rebalancing) allows you to implement a counter-cyclical strategy, following which, in the best of cases, you buy when prices are low and sell when prices reach a high value. However, the more frequently you rebalance your portfolio, the higher the transaction costs and the less you will be able to benefit from lasting market trends. The rule of thumb suggests that you should check your portfolio at least every 12 months to eventually consider a rebalancing of investments. STRATEGY 4: STROKE PURCHASES From the dilemma that you can’t know in advance whether the current share price is cheap or not, there is an easy way out: to invest in a staggered manner. If you inherit CHF 300,000 today, you don’t have to invest all of your assets in one fell swoop. Instead, it is preferable to invest it regularly over an extended period. For example, today you invest CHF 50,000.– and every four months you invest another CHF 50,000.–: after 20 months you will have invested the full amount. By doing so, if you consider the entire period, you will invest at an average price and more advantageous conditions (Cost Average). It is reasonable to adopt this staggered approach for subsequent amounts as well. You can implement it yourself, or contact those who offer savings plans and propose investments in different funds. If you opt for such a partnership, you should choose a trader who invests your money in cost-effective ETFs (Exchange Traded Funds). By making regular deposits, you will benefit from the effect of the average price: when prices go down, the shares of funds purchased increase, while they decrease when prices go up. Again, the costs must be compared. STRATEGY 5: CONTAINING LOSSES True, leaks hurt. When you sell a title, the loss is not only recorded on paper but also materializes definitively. For this reason, many investors are holding onto a stock even if its price has fallen sharply: they hope that sooner or later it can be resold at a higher price than its initial value. Avoiding losses is also essential because it is very difficult to remedy them. If a stock loses 50 percent, its value must double to reach its starting price again.

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