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INVESTING PRINCIPLES : FOCUS ON WHAT YOU CAN CONTROL
by Sam Hulson of First Equitable
The deep global economic shock and uncertainty surrounding the coronavirus ( COVID-19 ) pandemic has made everyone rethink their finances and investments , making it clear that financial security is more important than ever to our overall well-being .
While it ’ s almost impossible to plan for a global pandemic , you should still have an investment strategy that grows with you throughout different life stages . Investing is a crucial part of any financial plan .
If you ’ re considering investing , whether for the first time or expanding your current portfolio , there are some key things to remember . However experienced or sophisticated an investor you are , these are some basic principles that apply .
ESTABLISH A FINANCIAL PLAN BASED ON YOUR GOALS
Whatever your goals may be , it is important to revisit your goals at regular intervals to account for any changes to your personal circumstances . Successfully achieving your investment goals doesn ’ t happen by chance . It needs vision , a long-term commitment and the help of professional financial experts to create and execute your strategy .
UNDERSTAND THE REASONS WHY YOU ARE INVESTING
Start by thinking about your objectives and why you want to invest . The stock market tends to produce higher returns than a savings account in the long run because the interest rates on cash – and these are particularly low at the moment – don ’ t normally match the growth potential of shares . It ’ s important to consider how to maximise what you can afford to invest and how much time you need to remain in the market . Don ’ t try to time the markets , it ’ s nearly impossible .
TIME-FRAME AND RISK TOLERANCE FOR DIVERSIFICATION
Diversification is an investment strategy wherein you spread your portfolio holdings across various types of assets throughout different sectors , and even in different countries . You need to know your comfort level with temporary losses and understand that asset classes behave differently . Don ’ t chase past performance .
Remember , when you plan for a longer time-frame , you can take more risk with your investment . So it is crucial to consider the time-frame and risk tolerance for diversifying your portfolio .
MINIMISE TAXES TO MAXIMISE RETURNS
Every investment has costs . Of all the expenses , however , taxes can have the greatest impact and take the biggest slice out of returns . The good news is that tax-efficient investing can minimise the tax burden and maximise returns . Remember , the higher your tax bracket , the more important tax-efficient investing becomes . The difference between pre-tax and post-tax investment returns can be substantial , and without a carefully planned tax-efficient investment strategy high earners in particular run the risk of facing formidable tax liabilities . Markets may be uncertain , but taxes are certain – so pay attention to net returns to minimise taxes and maximise returns .
DON ’ T JOIN THE HERD AND REACT TO MARKET NOISE
Investing comes with risks . Anyone who says otherwise is mistaken . But there are also risks in not investing – inflation being the most obvious . One of the keys to investment success is to avoid the noise from the plethora of omni channel media sources . It ’ s easy to join the herd and react to market movements and short-term news flow . Investors are continually bombarded with headlines , charts and financial data over the internet and the press . Being bombarded with this information can evoke strong emotional responses from even the most experienced investors . Ignore this noise and your odds for success increase .
TIME TO TAKE A FRESH LOOK AT YOUR FINANCES ?
Planning your investment goals is essential if you ’ re going to have a real chance of achieving them . A financial review is a great way to take a fresh look at your finances and plan for the journey ahead . More importantly , it enables you to talk through your long-term financial objectives and discuss with us a way forward to deliver your plan to achieve them .
Contact us to find out more ; you can also email me at : sam . hulson @ first-equitable . com wirrallife . com 31