Investment success depends on buying and holding quality investments in a well-diversified portfolio. My last post discussed the importance of developing an investment plan. The quality and success of this plan also depends on the quality of the investments you own. A long-term approach to investing is the best way to take advantage of growth opportunities and to minimize certain investment risks. This takes both time and discipline.
Anatomy of a quality investment
When buying bonds, it’s important to focus on those rated investment grade. When buying stocks, no single attribute defines quality, but, generally speaking, you should look for companies that are well-managed with long track records of growth and performance. Another thing to look for in quality stocks is a regular history of dividend payout.
Mutual funds and segregated funds, with reasonable fees, that own these types of stocks and bonds are also quality investment vehicles. When selecting a fund, it’s best to look for funds with a 10-year track record and ones that don’t hold the top performing spot for the previous year. It’s likely that the fund managers took a lot of risk to reach those returns and the level of risk means that those returns are likely unsustainable. Any fund you select should fit into your long term investment plan.
Aggressive investments can be appropriate for some investors, but more often than not they shouldn’t make up an entire portfolio.
The golden rule
The golden rule for investing: If it sounds too good to be true, it probably is.
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