Investment Strategies and Planning: Tips for Successful Investments

Investment is defined as individuals using a certain amount of money they have saved to gain or gain income by using various tools. In this context, individuals aim to reach the highest benefit with the limited resources they have through effective investment strategies.

On the other hand, unfortunately, according to studies conducted in our country, the level of financial literacy is below the desired level. This means that many people who invest without having sufficient information and without receiving professional support services may face financial losses.

Financial literacy is the ability to make the right financial decisions based on knowledge, skills, and confidence in financial matters. It includes having information on issues such as the risk and return of investments, inflation rates, interest calculations, and advantages and disadvantages of investment instruments. 

When investing, financially literate individuals can make more conscious and sound decisions by considering various factors such as risk analyses, return expectations, and market trends.

Thanks to financial literacy, individuals understand financial products and services better and know which elements to pay attention to when investing. They also know how to protect themselves against potential risks.

How to create an investment strategy?

Financial literacy is essential to developing a good investment strategy. Financial literacy does not only appeal to a certain segment; it is essential for individuals of all ages, incomes, and education levels. 

In terms of economic stability and financial solidity, the existence of individuals with high financial literacy levels in society in general is of great importance. The increase in the number of financially literate individuals contributes positively to economic growth and the healthy functioning of financial markets.

As a result, increasing your financial literacy level before making a financial investment allows you to achieve maximum returns while minimizing risks. Therefore, it is very valuable to receive financial education, do research, and benefit from expert opinions before making your investment decisions.

What is portfolio diversification and how is it done?

A successful investment is not adding a product with a rising price to the portfolio. Knowing the products, understanding their risks and features, and internalizing their mathematics may be a difficult process at first, but it will provide serious benefits later on.

When evaluating the savings obtained with great difficulty, one should never pursue high profits in the short term by taking great risks but should focus on growing the portfolio steadily within the time frame appropriate to the maturity preference.

While distributing the portfolio to different asset groups, determining this distribution according to risk preferences, and receiving professional support (investment consultancy) on this issue when necessary may be the right strategy, distributing diversification not only among risk groups but also among different instruments in the same risk group offers an efficient way. 

Even in the most risk-free-looking term deposit products, liquidity, profitable side, and exchange rate risks can be balanced by diversifying among maturity, bank, and currencies.

How to manage risk and insurance?

Advertisements that promise fast and high returns, which are frequently seen on social media, attract many people to these investments. However, it should not be forgotten that individuals with limited financial knowledge can easily be taken in by these promises and make investments without doing detailed research.

Such high-return promises can also be used as a method for fraud and can cause financial loss to the investor. For this reason, it is important to be careful and skeptical of promises of fast and high returns.

When making a financial investment decision, it is not recommended to make a decision quickly with impulsive behaviors without making a detailed evaluation. Conscious financial investors consider many alternatives when making an investment.

The ability to evaluate may decrease and risks may be ignored under pressures such as missing an opportunity, increasing prices, and similar. In addition, this issue is frequently used by fraudsters. Therefore, avoiding sudden and reactive investment decisions will undoubtedly protect investors.

Before making a financial investment decision, it is important to evaluate the relevant investment from a legal perspective. Within the scope of developing financial literacy, it will be necessary to obtain information and conduct research regarding the investment to be made.

Because the investment to be made may be legally prohibited or a crime. In this case, a legal liability may arise when trying to make a profit through investment.

How to set investment goals?

Investors should first clarify their positions on three main issues: Risk, maturity, and targets. Although risk is expressed as “deviation from expected return” in financial terms, we can concretize it as “possible losses” for a non-professional individual investor.

How much of the principal can be accepted to lose when things do not go well provides an important roadmap when making our investment choices. Here, when we consider the effects we are exposed to such as the time value of money and inflation, we need to use the concept of “real return” in our calculations.

A return that seems satisfactory in nominal terms can cause us to lose in real terms as the term extends. For this reason, the maturity of the portfolio and the positions to be carried in it should be determined from the beginning according to the investment horizon. 

Finally, since evaluating savings in line with the goals will prevent taking excessive risks, investment targets should also be determined from the beginning. While it may be a goal to increase savings as much as possible with the urge to secure the future, goals such as renovating your house in three years or sending your 10-year-old child to a university abroad when he/she turns 18 may also determine your investment choices.

How to evaluate and optimize investment plans?

After determining the possible risks, terms, and targets, investment products that can offer the most suitable solutions for these parameters should be determined. For example, evaluating an accumulation that aims to gain an exchange rate in the long term in stock markets or buying Treasury Bonds to share in the development of the country’s economy is an incompatible strategy. 

Basically, risky products such as stocks and funds containing them can be preferred to participate in the operational growth of companies and benefit from their profitability; fixed-income products such as deposits, bonds, and bills, etc. to protect savings against inflation in the long term; and products such as Eurobonds, gold, foreign securities funds, etc. to protect against fluctuations in exchange rates. Of course, a diversification consisting of all these products and other alternatives can also be made in line with needs and risk preferences.

Leverage can be used at moderate rates from time to time in the management of investments and positions financed with credit can be opened. However, here too, it is necessary not to overdo it and not to act excessively as if the return is certain.

Frankly, the use of leverage can sometimes cause even those who have many years of experience in the investment world to find themselves in very difficult situations.

See you in the next post,

Anil UZUN