Over the years, certain trends have changed the way people invest
Over the years, certain trends have changed the way people invest. Just like in any other activity, these trends that often come and go shape how players behave to achieve their goals.
For instance, the dawn of technology has led to the rise of tools that make investing easier and convenient. Meanwhile, it has also helped advisors assist their clients in reaching their financial goals more efficiently.
However, Peter Stephens from the Motley Fool Canada cited three things that will remain universal when it comes to investing. He said that by understanding these three things, investors would be able to improve their portfolio returns in the long run.
The first lesson is the concept of cycles. Stephens explained that whilst some stock markets across the globe have enjoyed their cloud nine in recent years, the reality is that the wider economy still moves in cycles.
"This has always been the case, and asset price bubbles and overconfidence can be traced back centuries. Their subsequent ‘busts’ are also inevitable, as human emotions turn from greed to fear in the face of a potentially uncertain economic outlook," he explained, stressing that the human factor that drives economic cycle will never disappear.
Meanwhile, Stephens said the second universal lesson revolves around seeing something that looks too good to be true. This applies to value traps or the situation where a stock seems to offer a robust investment due partly to its low valuation. But this should not be the case, as no asset is ever cheap without good reason.
"It may be facing financial challenges of its own, or a difficult industry outlook, for example. Avoiding value traps can improve portfolio returns, as well as reduce the risk faced by an investor. In the long run, this can lead to superior investment performance," he said.
Lastly, investors looking for returns in a short amount of time are here to stay, even if short-term investment leads to high volatility. This is to the advantage of long-term investors, as volatility creates buying opportunities.
"Volatility can cause share prices to move away from their intrinsic values, which can lead to wide margins of safety. While instability in share prices can cause concern for investors with even the longest of timeframes, embracing it as a constant event can deliver higher than expected returns in the long run," Stephens noted.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Making the difference for clients in wild markets
How advisors should be helping investors
For instance, the dawn of technology has led to the rise of tools that make investing easier and convenient. Meanwhile, it has also helped advisors assist their clients in reaching their financial goals more efficiently.
However, Peter Stephens from the Motley Fool Canada cited three things that will remain universal when it comes to investing. He said that by understanding these three things, investors would be able to improve their portfolio returns in the long run.
The first lesson is the concept of cycles. Stephens explained that whilst some stock markets across the globe have enjoyed their cloud nine in recent years, the reality is that the wider economy still moves in cycles.
"This has always been the case, and asset price bubbles and overconfidence can be traced back centuries. Their subsequent ‘busts’ are also inevitable, as human emotions turn from greed to fear in the face of a potentially uncertain economic outlook," he explained, stressing that the human factor that drives economic cycle will never disappear.
Meanwhile, Stephens said the second universal lesson revolves around seeing something that looks too good to be true. This applies to value traps or the situation where a stock seems to offer a robust investment due partly to its low valuation. But this should not be the case, as no asset is ever cheap without good reason.
"It may be facing financial challenges of its own, or a difficult industry outlook, for example. Avoiding value traps can improve portfolio returns, as well as reduce the risk faced by an investor. In the long run, this can lead to superior investment performance," he said.
Lastly, investors looking for returns in a short amount of time are here to stay, even if short-term investment leads to high volatility. This is to the advantage of long-term investors, as volatility creates buying opportunities.
"Volatility can cause share prices to move away from their intrinsic values, which can lead to wide margins of safety. While instability in share prices can cause concern for investors with even the longest of timeframes, embracing it as a constant event can deliver higher than expected returns in the long run," Stephens noted.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Making the difference for clients in wild markets
How advisors should be helping investors
