How To Build An Investing Strategy | Fidelity Investments

Investment Strategy Importance - A clear investment strategy is crucial for reaching financial goals, acting as a roadmap to navigate the market's unpredictability [1][2] - Investors with a well-defined and consistently followed strategy tend to outperform those without one [3] - Emotions can negatively impact investment decisions, but a solid strategy helps investors make choices based on goals, not feelings [3] Building an Investment Strategy - Experts recommend covering minimum payments, maintaining sufficient cash for daily expenses, utilizing workplace 401K matches, paying off high-interest debt, and fully funding emergency savings before investing [4] - Determine investment goals (long-term like retirement, short-term like education, or mid-term like buying a house) and their timelines to tailor the strategy [4][5] - Risk tolerance is a critical factor; higher risk can lead to greater gains or losses, while lower risk is suitable for shorter timelines [5][6] Investment Options and Considerations - When evaluating stocks, consider the company's business potential, market share growth, revenue and earnings growth, product/service value, and analyst ratings [8] - For bonds, assess the credit rating to gauge the issuer's financial health and repayment likelihood, as well as the bond's duration to understand its sensitivity to interest rate changes [8][9] - Diversification is essential; avoid over-concentration in a single stock or bond to mitigate risk [10] - When selecting ETFs and mutual funds, align the fund's objective with investment goals and consider funds with diversified investments [10][11] - Expense ratios impact returns; even small differences can accumulate significantly over time [11][12] Managing and Maintaining the Strategy - Regularly review and adjust the investment strategy to align with changing needs, timeframes, and risk appetite [14] - Rebalancing the portfolio periodically is essential to maintain the desired asset allocation [14] - Experts suggest reviewing and confirming investment goals at least annually [15]