Most investors emphasize too much on choosing between specific bonds and shares. According to Alan Safahi Orinda, a successful entrepreneur and startup founder in San Francisco, the core principles dictate your wealth-building strategy’s success or failure. Check out these five golden rules crafted by Alan Safahi to create your investment plans for long-term value accumulation. Read on!
1. Focus on the Power of Compound Interest
According to Alan Safahi, it is crucial to make the interest work for you. You earn interest on your capital when you invest money. Likewise, the following year you earn interest on your initial capital and the first year. So, this continues, and you earn interest on your original capital and the first two years’ interest.
Safahi says that even Einstein acknowledged the effectiveness of compound interest. Because Einstein calls the compound interest the “eighth wonder of the world,” you must remember its power.
2. Combat Risk with Diversification
Alan Safahi advises investors to diversify across sectors, assets, styles, managers, and securities. Diversification is a fundamental investment rule, allowing you to create a balanced path and take a middle road through the harsh market performance.
In addition, diversification enables your investment to grow steadily with smaller changes or fluctuations along the way. It is an efficient and quick way to manage risks. Remember, diversification protects you from losses in any investments.
3. Understand the Return Tradeoff
No one can neglect the significance of asset mix. If you fail to get the right asset mix, nothing else matters. Likewise, if you want to meet your goals and objectives, make sure you streamline your asset allocation processes.
According to Safahi, asset allocation explains 70% to 90% of your portfolio’s total returns. Regular investments require you to trade off a high expected return with greater risks. The immediate solution for this problem presented by Alan Safahi is getting your asset mix and the amount of each asset right.
After deciding the appropriate asset mix for yourself, make sure you stick to it. However, you can make modifications when the circumstances change. Safahi advises investors to perform a regular review with their financial investors to address fluctuating circumstances.
4. Avoid Looking At Past Performance
Safahi’s extensive research shows that past performance does not indicate future performance. Bear in mind that looking at the past performance is an ineffective guide to your future performance.
Most investors think that if an investment manager has done well in the past, they are clever and carrying out effective operations. It means they will do well in the future as well. Unfortunately, past performance has limitations and limited use because new circumstances mean the past strategies won’t outperform.
5. Stay in the Market
Safahi says “time is your best ally” and has exceptional properties. For example, time reinforces the power and effectiveness of compound interest. It also reduces the risk of adverse outcomes. Because “share” markets are usually volatile, investors require significant average returns for investing in shares.
It is crucial to focus on the range of historical returns for each asset class because it can guide you on the range of returns that you can expect for a given period. Safahi’s research shows that the equity market has short-term volatility. However, they rise consistently over the long term.
Final Words
You would call an architect if you wanted to design your luxury, modern, and dream house. Likewise, if you want a sophisticated investment portfolio, you need to understand the rules of investments. That way, you can best fit your needs.
Remember, high-quality and practical investment management advice and tips do not come cheap, leading to poor decision-making and risking your investments. Thanks to Alan Safahi, you can leverage the power of these five golden rules to streamline your investments.
Originally Posted: https://vocal.media/trader/the-5-golden-rules-of-investing
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