Investing is one of the most valuable things you can do for your financial health, particularly if you’re looking ahead to the future. Whether you have plans to retire young, boost your passive income while you travel or reduce your hours at work, or generate more money to put into trusts for your children or grandchildren, investing can be an effective way of getting more from your savings.
These days, high street banks are offering poor interest rates to their customers in relation to the rate of inflation. This means that while saving money each month and putting it aside for the future is just as important as ever, it’s a lot harder to generate any worthwhile return on your savings if you’re simply putting it into a traditional savings account.
This is why more and more people are looking at saving and investing in a different light. It’s not a venture reserved for the super wealthy, and it needn’t represent a daunting prospect if you consider yourself to be relatively cautious when it comes to risk.
Here’s what any first-time investor needs to understand.
1. Don’t hover
The worst thing you can do is hover over your investments, twitching at every slight dip and increase in value. Provided you’ve approached your investments with the guidance and insight of an independent advisor, you don’t need to torture yourself with the ‘helicopter investor’ approach.
Most investments are made with a long-term view, and very few investments will follow a steady upward trajectory free from any blips or dips. Liberate yourself from hovering and, instead, put your faith in the plan you and your financial advisor have worked on together.
2. Take a measured approach to every investment
It’s a classic feeling many investors will remember experiencing – the feeling of having made a strong investment, seen some worthwhile returns from it, and the subsequent motivation to make three more investments straight off the back of the last one.
It’s no surprise that so many new investors feel this way. If you’ve only ever relied on low-yield savings accounts to store your money, witnessing for yourself how much more worthwhile a few shrewd investments can be is incredibly motivating.
But the very best investors maintain the same degree of caution and control over their investment portfolio no matter how much it grows. There’s no point at which independent financial advice isn’t intrinsic to wise investing, so avoid that ‘bitten by the investing bug’ feeling whenever it starts to creep up.
3. Stay away from the apps
These days, it’s very easy to make an investment. You could make one within the next 3 minutes if you wanted. Even so, making sound investments that truly serve your financial goals requires just as much expertise as ever before, no matter how many apps there are flooding the market.
There’s been a major rise in the number of investment apps on the market, and the developers behind these apps know how to make investing sound appetising. Think of it like fast food – how much of a difference there is between the picture on the billboard and the meal you actually sit down to eat. That’s not to say that all these investing apps are intentionally misleading users, but that there’s a lot more to making a great investment (and a good burger) than 3 minutes of attention.
4. Making good investments means knowing yourself
No two investments are created equal. There are an enormous number of options available to investors, from ISAs and JISAs to offshore investment bonds and open-ended investment companies (OEICs), and some entail a much higher degree of risk than others.
A good investor isn’t someone who is willing to put up with a high risk. It’s not as simple as that. High-risk investments tend to yield much higher returns, but that shouldn’t be regarded as a compelling reason in and of itself to make those investments. Some people are better suited, both financially and temperamentally, to risks than others.
If you have a low tolerance for risk – say, because you’re on a fixed income that doesn’t allow much scope for saving each month – then there’s no value in forcing yourself to feel comfortable with high risk. Know yourself, your situation, your goals, and your tolerance for risk. That’s the sign of a good investor.
5. Understand the importance of diversification
If you’re serious about growing a strong investment portfolio and making your money go further – something that can really serve you long into the future – then it won’t be long before your advisor brings up the topic of diversification.
A diverse investment portfolio is one that covers a range of investment types – maybe property, bonds, long- and shorter-term investments, and ISAs – in order to limit your exposure to one particular type of investment. Even low-risk investments can pose a growing risk if you’re solely investing in them. As a result, a growing portfolio is always at its healthiest when it contains a variety of different investments.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.