What is success? An individual investor will need to define this for themselves. It is not easy when one begins to build an investment portfolio to make decisions in how to allocate scarce resources. One has to consider is a particular investment for the relatively short term, where you will expect to make a profit within a year? Or are you deciding to make a long term investment with a company or in a particular industry?
One indication of your business strategy is are you consistently making money over the long term? You can not expect to be profitable all the time. It would be nice just not realistic. If you make the wrong decision on a particular investment for your own growth strategy do you then sell at a loss to cut your exposure or do you take a long term view in hope for a future profit.
One can easily decide that a certain stock or industry is a ticket to wealth. The experts can and will often be wrong on investment advice . When considering outside information always consider the source of this knowledge and what are the plausible gains and risks.
A good example is the IPO (initial public offering) of stock for Facebook. The initial stock offering was set at $38.00 USD (United States Dollar) a share on May 18, 2012. It reached a high of around $45.00 a share that day. By the end of the business day it was only up 23 cents for the day. By August of that year Facebook had lost $50 billion USD. The only individuals and institutions that made money were the ones who had shorted the stock. A year later the stock sold for $26.25 USD.
Many single investors, businesses, organizations and even sovereign wealth funds (Norway Pension Fund) lost a great deal of money that first year. There were numerous investors who decided to cut their losses and sold their positions rather than risk even greater loss. Too late, the analysts talked about the lack of a sound revenue stream for the company. As a short term investment it was a total disaster. Of course at this point it was precisely the right time to buy Facebook stock. The stock closed today at $65.77 USD. It was up $2.89 USD (4.60%) today alone. As a long term investment Facebook has done rather well.
It is best for the investor to diversify not only between short and long term investments but in the kinds of assets that are purchased.It might be wise to make an investment in precious metals with a portion of your portfolio. A good ratio would be 10%. A equal division between gold and silver would make the most sense. Even those individuals who feel strongly about investing in commodities should not allocate more than 20% because the investor begins to lose the advantages of diversification if one goes for higher percentages in this sector.
You might next consider an investment in the energy sector. I would also suggest 5% to 10% here as well. One could invest in the commodity (oil and gas) itself or in a number of energy companies that explore, pump and refine energy products. A possible investment in alternative energy sources is an option as well.
Another investment opportunity is to take a look at a number of foreign currencies that are expected to either appreciate or depreciate depending on your investment strategy. I would suggest an investment of 5% to 10% in this area.
Real estate can be another lucrative investment but one must decide their level of involvement. Do you wish to be part of a fund or investment group? Or is your intention to own the property outright? Then there is the issue of renting, taxes, insurance, maintenance and management. Whether it is commercial or residential one can do well in this sector of the economy. I would suggest an investment of 10% to 20% of your portfolio can be devoted to this pursuit.
You might also decide that you would rather purchase agricultural property, timber land or land that will be used for mining or energy development. To devote 5% to 10% of your entire investment would provide further diversity to your portfolio.
The next sector I would suggest you investigate is high technology. Buying stocks in this area of the economy whether it is in communications,transportation, or other areas of general research and development will produce good value and stock dividends if it is consumer based. A 10% investment or slightly more in this sector would be judicious. You could invest in established companies like Apple, Amazon, Netflix, Tesla etc. You could also take a look at fairly new start-ups and get in on the ground floor.
Another area to consider is new technology. 3D printing would be a good example in this sector. Another would be the Home Entertainment industry. Here a 5% to 10% investment could be very lucrative if you choose the right companies.
An investor would be remiss if they did not take a look at the bio-medical technology industry. Given the size of the medical sector of the economy in nations around the world there are plenty of investment opportunities. This will be heightened as more money is devoted to a plethora of diseases and the population continues to age, particularly in the West. Again you could go with well established companies or take a look at new comers. An investment of 5% to 10% here would be reasonable.
Another 10% could be devoted to a financial product that would pay you a reliable dividend or rate of interest. A bond or type of security or maybe even a bank. You could also invest in a manufacturing or a retail company that is doing well.
Your final portion should be invested in an opportunity that comes along ever so often. A recent example of this was the opening of the medical marijuana industry in the United States and elsewhere. Here a 10% or 20% investment could end up being a major income generator for your portfolio. However, you will need to determine when you have made sufficient profit. These kinds of investments usually have a major spike in interest and enthusiasm followed by a major retrenchment. It is best to get out near the peak of exuberance or hype. If you would like to reinvest again when the price of the stock has come dramatically down you could possibly make more money but in the longer term.
To be successful with investing one must have patience. Diligence in research is also an important aspect in this pursuit. You must carefully weigh gain versus risk. Do not make investments you are not comfortable with or you feel are excessive. Make sure you understand what you are investing in and what are reasonable growth expectations. If you later change your mind you can sell your position even at a loss. That is why diversification is so important. If a portion of your portfolio is not doing well it is better to make changes that you are more comfortable with. As long as there are more winners then losers in the entire investment portfolio, you can afford to make a few mistakes and absorb an occasional financial loss.