Investment is an art. The art of understanding and focusing on the big picture of your main investment objectives.
Before you pursue any Investment plans, look into the following areas.
1.Why are you investing
The start of any investment strategy must be to understand why you want to
invest in the first place and what you are trying to achieve. What is your
timescale? How much risk do you need to take?
2. Consider how long you can invest
Think about how soon you need to get your money back. Time frames vary for
different goals and will affect the type of risks you can take on. For example:
If you’re saving for a house deposit and hoping to buy in a couple of years,
investments will not be suitable because their value goes up or down. Stick to
cash savings accounts.
If you’re saving for your pension in 25 years’ time,
you can ignore short-term falls in the value of your investments and focus on
the long term. Over the long term, investments tend to give you a better chance
of beating inflation and reaching your pension goal.
3. Make an investment plan
Once you’re clear on your needs and goals – and have assessed how much risk
you can take – draw up an investment plan.
This will help you identify the
types of product that could be suitable for you.
4. Diversify!
It’s a basic rule of investing that to improve your chance of a better
return you have to accept more risk.
But you can manage and improve the balance
between risk and return by spreading your money across different investment
types and sectors whose prices don’t necessarily move in the same direction –
this is called diversifying.
It can help you smooth out the returns while still
achieving growth, and reduce the overall risk in your portfolio.
5. Decide how hands-on to be
Investing can take up as much or as little of your time as you’d like:
If
you want to be hands-on and enjoy making investment decisions, you might want
to consider buying individual shares – but make sure you understand the risks.
If you don’t have the time or inclination to be hands-on – or if you only
have a small amount of money to invest – then a popular choice is investment
funds, such as unit trusts, Open Ended Investment Companies (OEICs) and
Exchange Traded Funds. With these, your money is pooled with that of lots of
other investors and used to buy a wide spread of investments.
If you’re
unsure about the types of investment you need, or which investment funds to
choose, get financial advice.
6. Check the charges
If you buy investments, like individual shares, direct, you will need to
use a stockbroking service and pay dealing charges. If you decide on investment
funds, there are charges, for example to pay the fund manager.
And, if you get
financial advice, you will pay the adviser for this. Whether you’re looking at
stockbrokers, investment funds or advisers, the charges vary from one provider
to another.
Ask any provider to explain all their charges so you know what you
will pay, before committing your money. While higher charges can sometimes mean
better quality, always ask yourself if what you’re being charged is reasonable
and if you can get similar quality and pay less elsewhere.
7. Investments to avoid
Avoid high-risk products unless you fully understand their specific risks
and are happy to take them on. And some investments are usually best avoided
altogether.
8. Review periodically – but don’t ‘stock-watch’
Research shows that investors who watch their investments day to day tend
to buy and sell too often and get poorer returns than investors who leave their
money to grow for the long term.
Regular reviews – say, once a year – will
ensure that you keep track of how your investments are performing and adjust
your savings as necessary to reach your goal.
You will get regular statements
to help you do this. Don’t be tempted to act every
time prices move in an unexpected direction. Markets rise and fall all the time
and, if you are a long-term investor, you can just ride out these fluctuations.
