Managing your wealth can be boiled down to three key elements: protection, growth and tax reduction – with each one equally relevant to people at all asset levels.
35% of our users are active investors. In our conversations with them, we have learned some common investing 101’s. Here are the top four investing tips we have gathered. I hope you find them useful.
Understand your investment objectives.
Write them down and don’t invest in anything that doesn’t match that profile.
Unless you are gambling with money you can afford to lose, then your truthful answer is likely to have a long-term time horizon. So no matter how good that stock tip sounds from your friend, resist the temptation. Far more powerful over the medium and long term is the power of compounding and reinvesting income.
THINK ABOUT: Are you able to understand how your investment objectives will change over the next 20 years and adjust your investment strategy accordingly over time?
Understand your risk appetite and the risks associated with each investment.
Risk is a complicated subject. The banks got it all wrong in 2008.
You don’t need to be too detailed. You just need to understand what risk you are prepared to take – what risk you should take.Read up about the generic risks to certain investments and make sure your portfolio is in line with those.
In a 2015 survey of DIY investors over 50 years old, we found that over 80% of those investors had portfolios made up entirely of equities. When we spoke with a few of these investors they had no idea that their portfolios carried a ‘high risk/capital growth profile’. Those over 50 years old should rarely be at that high level of risk.
If you are DIY investor and this is news to you, do some research into what risks the various types of investment carry. If you are not interested or inclined to do that research then you should not be a DIY investor!
THINK ABOUT: Most retail investors have very little understanding of risk. Do you really understand the risk and volatility involved in each of your holdings? Do you know if you have replication risk of duplicate holdings in funds?
Understand yourself. Are you making an investment decision with a level-head? It’s a battle against your own irrational fear and greed.
It is so easy to lose control over your investment process and buy/sell something without the due care and attention, on a whim. All of a sudden you think you are Warren Buffett. All of a sudden you think you are a trader on Wall Street.
These are very dangerous temptations when managing your own livelihood, savings and retirement pot.
Discipline also factors into regular investing. One of the best foundations for strong investment performance is regular investing and the concept of ‘pound cost averaging’, the catch is that this requires monthly time and discipline to maintain if you are not using a professional.
THINK ABOUT: You get a great tip from a friend. You read a glowing article about an emerging market. Your portfolio has just taken a whack over the last month and you’re worried. Markets are going crazy, winning and winning gains. How strong are you not to let fear and greed in the door? How disciplined are you to make regular investments every month?
Be disciplined on the costs involved in managing your wealth.
Fees add up. Especially for smaller investors.
Apply a fee cap and do some searching on what is normal.
But read the small print – transaction fees and stamp duty may be add-ons to every trade you make in that portfolio (it could be a lot in a year).
THINK ABOUT: Do you understand how much you are paying? You need to add up the costs involved in your portfolio, not just the trading costs but the underlying fund management costs and entry charges. You need to factor in your time costs.
Adhering to these top tips can be difficult. Successful investing is time-consuming work that requires responsibility for your financial future. It’s not for everybody. Personally I would rather spend my weekends with friends and family than have to worry about all this.
If you manage your own investments then finding professional advice to complement your own portfolio is sensible and now easy. 35% of our users at findaWEALTHMANAGER.com manage their own portfolios AND use us to find the right wealth managers to manage core portfolios and tax efficient structure.
That gives you peace of mind and still makes investing fun without the concern that getting it wrong could cost you everything you have worked for.
If you haven’t considered using a wealth manager before – or if you haven’t reviewed your existing manager to check their competitiveness and suitability try our smart online tool. Or, if you would like to discuss your situation with our straight-talking team, please do get in touch here.