The start of a new year is the ideal time to turn over a fresh leaf in all regards, including as an investor. Here are a few top tips on what to do, and what to avoid, to help you invest smarter and build your wealth more proactively than ever in 2022.
Think “buy and hold” for a decent duration (unless there is a very good reason not to)
Famed investor Warren Buffet is reported to have said “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”. While that’s not to say that you should hold every single position for a decade, or even years, there is a lot to be said for committing only for reasonable time periods. This is the difference between speculation and investing in the proper sense.
For investors with a long-term time horizon, rather than day traders comfortable with lots of ups and downs, it is usually far better to focus most of your portfolio on high-conviction holdings with good fundamentals
It should always be borne in mind that chopping and changing your portfolio very frequently can incur excess costs that really eat into any gains. For investors with a long-term time horizon, rather than day traders comfortable with lots of ups and downs, it is usually far better to focus most of your portfolio on high-conviction holdings with good fundamentals.
Recognise true growth stories, but be wary of investment fads
Relatedly, investors should try to be keenly aware of the difference between a true growth story and an investment fad – particularly where the media is feeding a frenzy or non-qualified people are a little too keen to offer “advice” on the next hot trend.
There are certainly trends that investors could look to participate in through thematic investing, like the climate change plays discussed in our latest Investment Bulletin. However, you must remember that many an investment bubble has dramatically burst. Moreover, if you are hearing about a craze everywhere, then a lot of the upside is likely to have already been priced in.
Always keep your balance
Diversification. meaning a sensible division of your portfolio between different asset classes, regions and sectors, is crucial to maintaining returns and minimising risks. This will mean regularly re-balancing your portfolio because as some proportions grow in value they will come to represent a greater portion of the whole and this could lead to dangerous levels of concentration risk as it becomes increasingly unbalanced.
The classic portfolio split used to be 60% equities for growth and a “ballast” of 40% fixed income. This has served investors well over the years, but the chaos induced by the coronavirus pandemic in recent years have thrown that simple wisdom into doubt
The classic portfolio split used to be 60% equities for growth and a “ballast” of 40% fixed income. This has served investors well over the years, but the chaos induced by the coronavirus pandemic in recent years have thrown that simple wisdom into doubt. In today’s environment, you are likely to need a far more sophisticated approach to asset allocation and perhaps should think about widening your investment horizons to maintain true diversification and strong returns. Consider using our fast, free service to talk to a professional get a read on how future-proofed your portfolio really is now.
Top Tip
Lee Goggin
Co-Founder
Think about risk management just as much as returns
We all get into investing to make money, and nothing beats the thrill of beating the market with a stellar investment pick. However, research tells us that people find investment losses very much more painful than gains. In fact, such is the pain, that investors who make serious losses early on can be put off for life. This is why many people entrust their money to the professionals right from the start.
Robust risk management is absolutely vital and frankly it is difficult for the amateur investor (however experienced) to recognised all the risks facing their portfolio, all of the time, across all asset classes
Robust risk management is absolutely vital and frankly it is difficult for the amateur investor (however experienced) to recognised all the risks facing their portfolio, all of the time, across all asset classes. If you have better things to do than watch and research the markets all day, perhaps it might be time to consider a professionalised solution. The improvements to your risk management are likely to more than make up for any costs.
Really recognise value, as well as costs
The media tends to perpetuate the myth that professional wealth management services are often over-priced and that DIY investors can do just as well by buying a selection of index tracker or Exchange-Traded Funds. It is certainly true that investment costs do vary and that is one of the reasons we exist: to help investors compare providers like for like on service, performance and fees.
Factor in their knowledge of tax savings, difficult to grasp investment themes and the fact that you can relax rather than watching your portfolio like a hawk, and we think you’ll agree that professional wealth management can represent very good value indeed
However, we can categorically state that the wealth managers selected to be on our panel represent very good value indeed. They are almost certain to deliver superior investment returns, while at the same time protecting you from losses more aggressively than most people can manage alone. Factor in their knowledge of tax savings, difficult to grasp investment themes and the fact that you can relax rather than watching your portfolio like a hawk, and we think you’ll agree that professional wealth management can represent very good value indeed.
Your strategy can always improve
You may consider yourself a sound, seasoned investor and you may well have made a lot of money over the years. That is in fact a cohort which makes up a large percentage of our user base. There comes a time, however, when most people recognise that they have taken things as far as they can – or want – to go. When you have built up a significant investment portfolio for a purpose important to you, it is not unusual for a degree of “investment vertigo” to set in. If that sounds like a familiar feeling, you are certainly not alone.
When you have built up a significant investment portfolio for a purpose important to you, it is not unusual for a degree of “investment vertigo” to set in. If that sounds like a familiar feeling, you are certainly not alone
Our Knowledge Centre features an abundance of material to help investors sharpen their strategy, but we would advise investors who are serious about building their wealth to open their minds even more and consider what a professional could do for them. By taking our short matching questionnaire you can connect with a shortlist of best-matched advisers who could really turbo-charge your portfolio and – as we have learned – in absolute terms when improved returns and risk management are considered, this could be at next to no cost.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
