I take a very safe (even boring) approach to investing. And I don’t own a lot of different investments. Instead, I choose a few investments I think are high quality and likely to help meet my long-term goals. Focusing on quality investments is an important part of long-term financial planning.
It doesn’t do you much good to invest in a wide range of assets if most of them are low-quality, under-performing assets.
As you work toward your long-term savings goals, it’s important to consider your situation, and to figure out whether or not your investments have the qualities needed to help you build wealth over time.
Choosing Good Value
First of all, a high quality investment is one that offers you good value for your investing dollar. Look at the fundamentals of the investment. Does it have staying power? Is it strong enough to withstand the vagaries of the market and come out ahead?
There are many fly-by-night investments with weak fundamentals. You can buy a lot of these investments, but all it means is that you’ll lose a lot of money when the assets lose value.
It doesn’t matter how much stock you own of a poor company if you aren’t getting a good value for your investment dollar. Instead, you’re better off owning fewer shares of a sound investment that is likely to weather the storms and gain over time.
Invest According to Your Needs
Sometimes, the quality of the investment is dependent on your needs. Take a look at your long-term plans for your money and your life. You want investments that are likely to help you reach your goals, and fit your needs.
A high quality investment is one that provides you with the chance for a reasonable return, and is tailored to fit your needs. Be clear about what you want your money to accomplish, and the time frame you expect to go with it. That way, you know your needs are being met, and the assets you choose work best for you.
Tax Situation and Fees
When evaluating your investments for quality, don’t forget to consider the tax situation. Understand the difference between long term capital gains and short term capital gains. When you sell an investment matters, and you want to make sure you calculate the impact of capital gains before you invest. Pay attention to the way different assets are taxed, and the ways that you can use tax-advantaged investment accounts to put off paying taxes, or to reduce your tax bill later on.
Additionally, you need to pay attention to the fees charged by your investments. Fund fees, administration fees, and even online brokerage fees, can cut into your real returns.
A high quality investment comes with low costs, as well as strong fundamentals and a tax efficiency that matches your long term financial plan. If you can minimize your fees, you’ll have a higher-quality portfolio overall.
There’s no need to invest in the cheapest, most plentiful assets you see. Instead, carefully vet your choices, and make it a point to choose quality investments over quantity.