Investing can be fraught with challenges no matter how seasoned you are, or what your asset allocation looks like. Every decision means balancing risk, reward, and opportunity cost—and knowing the right balance is unique to every investor’s portfolio. Perhaps paradoxically, the most important factors for investment success are the same for just about every investor. Even if individuals’ portfolios vary significantly, their goals are largely similar: pick investments that pay dividends, keep holdings diversified, take on a comfortable amount of risk, create clearly-defined goals, and have a savings safety net.
Mastering the five most important factors for investment success isn't as simple as it might sound, however. There’s nuance to each of these points that can make the difference between a successful slate of investments and a scattershot portfolio that might leave dividends on the table.
Here’s how to make sure your portfolio adheres to the five factors for investment success, and which investments might help play a role.
Investing is like many other large-scale efforts—you will only be able to determine success if you’re able to define it in the first place. Everyone wants to make investments that offer a return on the money they’ve put in, but that’s only the beginning. You have to know what your goals are beyond simply generating a return on your investments. The more specific you are with your goals, the better.
To set goals, consider what concrete accomplishments you want your portfolio to attain. This can take the form of how much you want your portfolio to be worth after a certain amount of time, or whether you want your portfolio to generate a steady stream of passive income that puts your investments to work for you. There are other potential factors as well, such as saving for retirement or taking advantage of growth in specific sectors.
With the right performance metrics in hand, you can evaluate how your investments are lining up with your goals. This will give you a clearer picture of what’s working and what isn’t in terms of your holdings.
With a concrete goal (or set of goals) in mind, you’re now ready to develop a strategy for how to accomplish them. What you determine your investing goals to be will influence the strategy you create in order to achieve them. For example, if you wanted to build a portfolio that generated passive income that beat market averages, you would want to look into alternative investments that can withstand the fluctuations of Wall Street. In that case, adding farmland investing to your portfolio could help you accomplish both of these objectives.
Every strategy should give you a sense of where to begin as you allocate money across different investments. Knowing exactly what you want to accomplish, and then creating a plan for how you’ll execute, puts you in a strong position to measure performance against your anticipated results. You’ll more than likely have to readjust your strategy as time goes on—especially in a financially uncertain market—but it’s better to have to undertake several iterations of the same strategy than to have no strategy at all.
Diversification is an essential component of any investing strategy—be it one that wants to maximize short-term gains or a portfolio designed for long-term and steady growth. Failing to factor diversification into your investments can leave you exposed to significant financial trouble if a specific sector, industry, asset class, or economy takes a dive.
If, for example, you were completely invested in stocks and Wall Street went into a deep bear market, you would be overexposed to the stock market losses much more significantly than if you included other kinds of holdings in your asset mix. This holds true for other investment categories as well. Ideally speaking, your portfolio should include a blend of conventional and alternative investments, giving you a little bit of exposure to growth in a variety of sectors (as well as less exposure to downfalls in any of them).
Building a diverse portfolio is only the beginning in terms of achieving long-term growth and success for your investments. Savvy investors have to be on the constant lookout for new investment opportunities as well. Conventional investing options can accrue value, without a doubt, but less crowded financial opportunities can give smart investors a bigger share of the earnings.
The world of alternative investments offers a range of unique value propositions for investors. Some conventional alternatives, such as real estate or commodities, can provide a hedge against market volatility with the possibility of growth as well. But even these alternatives tend to be somewhat crowded as far as investor interests are concerned. Other alternatives, such as farmland investing, offer steady rates of return and give investors a bigger seat at the table as far as earnings and dividends are concerned.
It’s possible to build a portfolio that’s primed for success all on your own. Odds are, however, that you stand to gain more by working with people who have expertise and know-how that no solitary investor may have themselves. Finding the right partners that can help you seek out opportunities can avail you to investments that may have otherwise gone unnoticed. This is particularly true when you’re evaluating new investment types in an unfamiliar market.
The world of alternative investing can provide smart investors with a stunning array of options. For some, however, there may be a pronounced learning curve when determining how alternatives differ from conventional assets. Or, in other cases, an investor may not have the knowledge or time to thoroughly vet every investment chance within the world of alternatives.
That’s why it’s crucial to partner with investment professionals who have intimate knowledge of certain sectors or investment classes. For example, FarmTogether offers investors with a host of tools and personalized support to help them navigate their farmland investing options. FarmTogether does due diligence and research so their clients don’t have to—making it easy to add farmland investing to a well-built portfolio.
Even though your portfolio might look unique, the same basic tenets of good investing still apply for everyone. Balancing your holdings, taking on the right kinds of risk, knowing what your long-term goals are, and making sure you aren’t sacrificing savings for the sake of investment plays can be the difference between building your portfolio and throwing good money after bad.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.