HOW TO BE A
SUCCESSFUL INVESTOR?
There are a few principles to make your
investments produce the desired results.
The individual investor should
act consistently as an investor
and not as a speculator.
Follow these 9 investment rules and your assets will grow. Invest:
- simply,
- without emotions,
- at a low cost,
- passively,
- long-term and patiently,
- with a suitable portfolio,
- with diversified risk,
- tax-smart,
- regularly.
Invest simply
Paradoxically, the simplest investment solutions are usually the most profitable. Do not unnecessarily complicate your investment strategy and do not invest in something you do not understand.
Legendary investor, billionaire and one of the planet´s wealthiest people Warren Buffett, was guided by a simple rule when choosing his investments: He only invested in businesses he understood and in companies with products of which he met on daily basis.
Finax offers basic investment for everyone. We apply a simple investment strategy to all the largest and most successful companies in the world.
Avoid emotions
The biggest enemies of investments are investor emotions and so-called limitations of mind inherent in each human being. These include:
- Herd mentality - It is a tendency to go with the crowd. It assumes that the majority cannot be wrong. However, as history shows, this is one of the most dangerous behavioural precedents in finance (bubbles, sell-offs, fear of buying into crashing markets, etc.).
- Overconfidence - People tend to think they are above average and that they can do things better than others. This is a dangerous notion in investing. To believe that I can manage to overcome the market when 99% of investors fail to do so, is very naive and financially painful.
- Distorting facts - In general, we tend to choose the facts that confirm our biases and overlook the ones which rebut them.
- Fear of Loss - Numerous research has shown that the fear of loss is emotionally three times stronger than the joy of profit. That's why many resort to the rapid sale of profitable securities and the holding of losing positions, which is the wrong investment behavior.
- Mental short-sightedness - We stick more to actual facts, that is, to things that have happened recently or that are imminent in the near future. Also, our decisions tend to be short-term, even impulsive, which is negative for investment. As a result of so-called mental short-sightedness, we tend, for example, to buy at market tops and sell at market bottoms.
Numerous behavioral finance studies have confirmed that the vast majority of individual investors achieve lower returns than the market due to the above-mentioned inherent behavioral patterns.
To be successful on the financial markets, you must not allow emotions to affect your investment. The solution is to limit your decisions and interventions to a minimum.
Finax Intelligent Investing requires only basic decisions from you. You set your financial goals, investment period, discover your risk appetite, and we'll take care of the rest to your satisfaction - we'll select your ideal portfolio and maintain it over the life of your investment.
Low Fees
Charges eat into your income from. The amount of the fees is crucial to the final result of the investment.
If you want to invest successfully, never overlook the fees. Lower fees mean higher returns for you
Take a look at the chart that shows the impact of fees on the ultimate appreciation of an investment. It compares the impact of the fee structure of Finax and the average Slovak equity mutual fund on the return of an investment with an average appreciation of 8% per year.
Comparison of the cost of the underlying investment in Finax and the average of the 10 largest equity mutual funds in Slovakia as of June 16, 2023 (data source: Fund Key Information Documents).
Do you see the difference? Finax's investment solutions are unrivaled in terms of fees. In Slovakia, you can hardly find another cost-efficient alternative to a managed portfolio.
Passive investment in the market
The implementation of the previous three rules of a successful investor is best fulfilled by so-called passive investing.
Passive investing means investing in the whole market, i.e. copying it. The advantage of passive investing is virtually no, or limited intervention in the portfolio. It is therefore a "buy and hold" strategy. The strategy does not attempt to time investments or select specific securities.
The limitation of human risk factor, together with minimal costs, predisposes passive investing to higher returns.
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For more information on passive and active investing, please refer to the Passive Investing section.
The easiest way to invest successfully is to accept market returns. There is a very low likelihood that you will get more profits from long-term investments by any other means.
Invest long-term and patiently
As the saying goes, "slow and steady wins the race." This especially applies to finances.
The key to success in investing is the use of the so-called compound interest. Thanks to it, the value of the investment accelerates its growth every year.
The long horizon also reduces the risk. Financial markets fluctuate over time, but so far they have always had only one direction in the long run, and that is up. The companies you invest in make billions in profits each year. This profit always goes into their value (share prices) regardless of the current market sentiment.
Speculation is short-sighted. No billionaire has become a billionaire by speculating, but by investing. The natural return of financial markets is between 8% and 10% per year.
A logarithmic graph of the development of the SP500 index over the last 70 years. Average growth of 7,8% p.a., with reinvested dividends 11,34% p.a.
Successful investor invests in the long run and is not subject to moods while keeping its investment horizon. Short-term fluctuations in investment are not the reason for changing the strategy.
Proper allocation
For your satisfaction with your investment, you need to know your propensity for risk.
Asset allocation is a way to divide an investment into various types of assets. Each asset differs in its returns and the risk associated. Historically, the most powerful asset class are equities, but their price varies more than that of bonds, which offer lower but more stable returns.
Proper distribution of your investment determines your future return. It is the essential tool for passive investment.
There is no universal optimal allocation - it is individual for every single investment, for every single investor.
Invest like a pro
With low fees, no emotions and tax smart.
As a specialist in passive investing, Finax assists and supports its clients with the selection of a suitable allocation. Based on their goals, risk profile, purpose and investment horizon, we choose an individualized portfolio tailored to each and every client.
In principle, we recommend the following strategies:
- In case you have a longer investment horizon, choose more stocks and fewer bonds.
- If you invest a greater portion of your savings, choose more bonds.
- If your risk acceptance is high, choose more stocks.
Diversifying (spreading) the risk
While the allocation refers to the specific composition of the investment, diversification denotes its diversity. If you buy shares of 10 major oil companies, those will be your allocation, but the diversification of the portfolio will be low. Portfolio diversification is important from several aspects, especially in passive investing:
Reduces the risk
I'm sure you're familiar with the old rule of never putting all your eggs in one basket. If the basket falls, you'll lose all your eggs. This is the same way to go about investing. The more instruments there are in a portfolio, the lower the risk of the portfolio, as the loss of one is negligible to the whole. Diversified portfolios are more stable.
Increases returns
No one can predict with certainty which asset will produce the highest gain and which will produce the biggest loss a year from now. Each year, the winner and loser is a different asset class. Trying to invest only in the winners usually ends up with worse returns than the market itself. Therefore, it is sensible to choose a broad asset mix.
It is a condition of passive investing
Passive investing is about investing in the market. The market is all the securities traded on a particular stock exchange or in a region. If you want to invest in the market, you need to buy a portfolio whose composition is the same as that of the market, hence broadly diversified.
The ranked performance in euro terms of the 10 index ETFs that make up the Finax portfolios between 2004 and 2019 is shown in the following matrix. It clearly shows that assets that are winners in one year often end up at the other end of the rankings in subsequent years.
All Finax managed portfolios are broadly diversified. We only allow you to invest in different asset classes from as little as €10 per month. You can invest in more than 10,000 securities with us with one simple portfolio.
What's more, starting from October 2024, you can further diversify your portfolio by investing in Polish assets (stocks and bonds) without currency risk. Find more information about the Zloty Portfolio here.
Tax-smart
To make your investment as profitable as possible, you need to optimize your taxes as much as possible.
Different asset classes and different approaches to investing have different tax regimes. There are different approaches to optimize tax on your investments.
It is important to set the investment strategy, so that the tax burden is either limited or non-existent.
When creating portfolio strategies, Finax also emphasized the tax aspect of its investments. By investing with us, you will not have to pay any unnecessary tax. All the more will be left of the returns for you and your assets will grow faster.
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Invest regularly
If you do not have larger savings, do not despair. Invest regularly in smaller amounts.
Putting aside a portion of your income is ultimately easier on your budget. It's easier to save in smaller amounts, such as €50, than to wait until you could make a larger deposit. It's better if your funds properly appreciate in value from the first possible moment.
Moreover, regular investment is also interesting from a risk perspective. When you buy securities every month, you don't have to worry about whether the markets will fall shortly after you invest. A fixed investment each month mitigates risk, as you buy more stocks when they fall (they are cheaper) and less when they rise (they are more expensive).
Regular investing is a solution that allows everyone to build wealth.
Finax makes investing available to everyone. Our mission is to bring Intelligent Investing into every household, which is why you can invest from € 10.
