You need to spread the risk in your investments by diversifying, going slow and finding the right strategy, according to investment expert Jason McIntosh.
Jason dedicates his life to advising investors on how to successfully invest in stocks through his service Motion Trader. The rules and skills he teaches are relevant to all investors, including property.
He talked to KnowHow founder Bushy Martin on the Get Invested podcast about the importance of having risk controls and diversifying when investing, using stocks as an example.
“You get the right stocks, you could make a lot of money … but the more stocks you add, the more you take the variability through having only one stock portfolio out of the equation and you take away a fair bit of the volatility. There’s still going to be volatility, but it’s not hinged so much on one or two stocks,” Jason said.
“The other advantage of spreading risk widely is you’re increasing the odds of getting several stocks which run a really long way, whereas if you’re just going one to maybe five stocks, you’re not giving yourself a great spread of opportunity and speed of maximising opportunity through having a number of trades on the new portfolio or investments in your portfolio.
“So, you’ve got to find that balance between having a workable trade size and spreading your risk. And that’s going to be different for everyone.”
Jason explained that investors should look beyond one asset class when diversifying their portfolio and secure income through other avenues, such as property.
“I do property as well. And so that gives me lots of spread with my investments … so the active side of what I do is the is the stock market and the business, and property I use for income,” he said.
“It’s also diversifying things a bit, so property and shares they’re correlated, but I’m doing them over different time frames. Shares, maybe a one to two year period, property over a ten year plus period.
“If the stock market goes through a lull, I’ve still got income coming through the property. And then you’ve got times when both are going really well. And so it’s good to have various prongs to your income and investment strategies.”
He added that part of these risk controls is upholding consistency in your investing.
“For the next 12 months, just choosing a consistent size I think is a good thing, whether it be a thousand dollars or ten thousand dollars or somewhere in between,” he said.
“What a lot of people tend to do is invest a bigger portion in their favourite stocks. Problem is, there is a lot of pressure on getting those big calls right. I’d prefer to have the relatively small trades approach. So, it doesn’t matter to me which stock does best because I’m investing the same in each.”
Most importantly, Jason stressed the importance of ‘getting rich slowly’ and not rushing into decisions.
“[You] don’t know which ones are going to work and which ones are not. That’s why you’ve got to spread risk. And if you do crazy things, you’re going to get disappointing results,” he warned.
“No one gets rich quick, unless you win the lottery, because it doesn’t work that way. It takes time to accumulate experience and capital, and it happens at a slower pace than people would like.
“But if you try and force that pace, you invariably blow yourself up somewhere along the way. And it’s disappointing to see potential sabotage by people just doing things which are just not appropriate for making money.”
Although, by reaching out to reliable experts who are already in the position you’re aspiring for, you can effectively quicken the process to an extent.
“If you can go and find someone who is already where you want to be and you can start making their ways your ways, I really believe you can fast track the process to a reasonable extent and you can make a big difference. You can save 10 years of trial and error and blood, sweat and tears,” he said.
But ultimately, despite the best advice and research, investors need to take ownership of their own path.
“Finding where to start is one of the hardest parts of investing because there’s so many different paths you can take and so many people you can listen to,” Jason said.
“There comes a point where you’ve got to decide, ‘look, I’ve read about a whole lot of approaches and I’ve heard a whole lot of opinions, and now I’ve got to decide what works for me. What am I comfortable with’?” he said.
“What sorts of stocks are you comfortable with? Do you have the emotional makeup to be a medium-term active investor? Because not everyone does. And that’s not necessarily a bad thing. It’s just not the way everyone’s wired. So, you’ve got to learn a bit about yourself.”
Listen to the full interview here.
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