Your investing strategy is your guide when making decisions, big or small. It can help you answer questions like: how much should I invest? Where can I put my money? How often do I need to invest and for how long?
It’s generally a good idea to stick to your strategy over the long term instead of making constant tweaks to how you invest. However, there may be instances when it’s probably better to adjust your approach.
Here are 4 things to consider when contemplating a shift in your investing strategy.
1. Your financial situation
Review your sources of income or investment capital. Are there any big changes from when you started investing?
Events such as starting a new job, getting a raise, or spending on emergencies can impact your ability and outlook about investing. They also determine the amount you can afford to invest.
If a bad event shakes up your finances, you might prefer to slow down and adopt a conservative stance while you recover.
On the other hand, earning more money can give you the opportunity to invest more frequently, with higher amounts, and possibly further diversify your portfolio.
2. Your investing knowledge
As you learn more about investing through experience and research, you’ll begin to truly understand strategies and investment options that confused or intimidated you when you were still starting.
You'd likely gain a better view of yourself as an investor, a deeper knowledge of your options, and a wider appreciation of investing.
When you make these new discoveries, you can consider incorporating them into your approach if you think they’re a good fit.
3. Your risk profile
As your situation and investing knowledge evolve, your capacity to accept risk may also change. You might be more willing to take risks as you start earning more and feeling more financially secure.
On the other hand, you might be less inclined to expose your money to risks after taking a pay cut. You may also seek more safety if you’re going through an unexpected event that's financially draining, or perhaps when you start preparing for retirement.
You should periodically check whether your risk profile has changed to know if you need to revisit your strategy.
4. Your goals
The goals you set when you started investing aren’t set in stone. For instance, you might decide to delay your retirement or do it earlier.
The number of your financial dependents can also go up or down, or you might be lucky enough to receive an inheritance or windfall.
These changes will impact how much money you’ll need to reach through investing and when you’ll need it. They may also determine how aggressive your strategy can be.
If you can wait longer before cashing out your investments, then you might be able to take more risks since you’ll have time to ride out the ups and downs of the market. The opposite is true if you’ll need the money sooner.
When is the right time for a change?
Be careful not to make changes just for the sake of tweaking your strategy as this might do more harm than good.
Before adjusting your investing strategy, assess whether your current one still suits your situation, knowledge level, risk profile, and goals.
If you find room for improvement and you’re confident enough to make the change, you can refine your investment approach to better reflect your evolving circumstances and aspiration.
