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I am in the construction stage with my investments. Therefore, my goal is to build long-term wealth from my Stocks and Stocks ISA.
And to do that, I would focus on the capitalization process. In other words, you would reinvest all the profits so that the money earned can be put to work in the stock market.
In fact, billionaire investor Warren Buffett was so spectacularly successful because of the way he accumulated his investment earnings over many years. I’d try to copy that approach, though my goals are a little more modest than aiming for the billions he’s made.
A personal investment style
But after identifying the capitalization process as the number one focus, the second consideration is strategy. It is important that all investors develop an investment strategy and stick to it. In fact, an unfocused investment approach can lead to low returns.
However, it took me a long time to evolve my strategy to where it is today. And I’m always cutting and adjusting my tactics and techniques. Sometimes I do it because of the results and market feedback. And sometimes by learning from other successful investors who have written books about how they did well in the markets.
And I think that continuous learning is an important part of being a lifelong investor. But a strategy, or style, for investing is often unique to each individual investor.
In fact, I consider that an individual strategy is essential. It should fit like a comfortable fleece. And it must be tailored to the individual’s emotional makeup, his attitude to risk, time constraints, and other considerations. In other words, it is important to develop a strategy that is easy to live with and that is effective.
A two-part strategy
So my strategy and investment style may not be the same as others. However, let me explain how you would put £20,000 to work inside a Stocks and Shares ISA today.
First, I would allocate a portion of the funds to a super diversified section of hands-off based on tracker and managed funds. The idea would be to capture the returns of the market in general. So I would invest in trackers following various indices like the FTSE 100, FTSE 250 and from America S&P 500. And I would choose some managed funds and mutual funds with various investment strategies.
Second, it would allocate a portion of the funds to a practice section aimed at outperforming the broader market. And to do that, you’d pick a handful of individual companies and invest in their stocks.
And for the practical section, I would focus on quality business. For example, they would need strong balance sheets and the potential to increase their earnings over time. And just like Buffett does, he would look for a valuation that makes sense for a long-term investment in the stock.
All actions carry risks as well as upside potential. And that’s because all of the businesses behind them face operational challenges from time to time. But I am optimistic that my long-term approach will deliver a satisfying investment result over time.
