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SIX PRINCIPLES OF INVESTING
by Sam Hulson of First Equitable
Whatever stage of life you ’ ve reached and whatever plans you may have for the future , you want your money to earn the best return possible without taking undue risk . That ’ s why it ’ s important to invest in a way that ’ s right for you and that will meet your goals .
Creating and maintaining the right investment strategy plays a vital role in securing your financial future . How much control do you want over your investments ? Investing can seem daunting , but you don ’ t have to do it all on your own . So what do you need to consider ?
Have a plan and stick to it The first thing to consider is to establish your investment objectives based on your future goals . It is one thing to have a target , but a sound financial plan can make the difference between simply hoping for the best and actually achieving your investment goals . You need to review your investments regularly to ensure they remain on track , stay focused on your plan and make sure you don ’ t get distracted by short-term market uncertainty .
Cash isn ’ t always king Putting your money in cash can seem appealing as a safe and secure option – but inflation is likely to eat away at your savings . For most people with longer-term investment plans , cash needs to be supplemented with investment in other asset classes that can beat the perils of inflation and offer better capital growth potential .
Diversify and always consider your investments as a whole If we could see into the future , there would be no need to diversify our investments . We could merely choose a date when we needed our money back , then select the investment that would provide the highest return to that date .
One of the easiest ways to manage investment risk and improve your probability of success is to have a variety of investments . You can diversify your portfolio across different asset classes , geographical markets and industries . A diversified portfolio , including a range of different assets , will help to iron out the ups and downs and avoid exposing your portfolio to undue risk .
Start investing early if you can Investing for a longer period of time is widely considered more effective than waiting until you have a large amount of savings or cash flow to invest . This is due to the power of compounding . Compounding is the snowball effect that occurs when the money you earn investing generates even more earnings . Essentially , you grow not only the original amount you invested , but also any accumulated interest , dividends and capital gains .
Don ’ t abandon your plans Some investors suffer from what behaviourists call ‘ activity bias ’: the urge to ‘ just do something ’ in a crisis , whether the action will be helpful or not . When investments are falling in value , it can be tempting to abandon your plans and sell them – but this can be damaging because you won ’ t be able to benefit from any recovery in asset prices . Markets go through cycles , and it ’ s important to accept that there will be good and bad years . Short-term dips in the market tend to be smoothed out over the long term , increasing the potential for healthy returns .
Tailored investment advice Every single investor ’ s needs are different and , while the points above are good general tips , there ’ s no substitute for an investment approach that ’ s tailored specifically for you . Once we know an investor ’ s risk tolerance and their investment goals , we can put in place a global portfolio of equities , fixed income , cash , and , when appropriate , alternative investments . The goal is to invest with a long-term view and maximise after-tax returns . It may just be the best investment you ever make .
Make informed decisions Making the right choices to invest for your future can seem complex . But with the right investment strategy in place , you can ensure you are able to make informed decisions to secure the financial future you want . Life doesn ’ t stand still , so your investment approach shouldn ’ t either . Getting investment advice can be one of the most beneficial things you can do for your personal finances and longterm financial wellbeing .
LOOKING TO INVEST FOR GROWTH , INCOME OR BOTH ?
If you ’ re not sure which investments are right for your needs , we can help . Whether you are looking to invest for growth , income or both , we can provide the expert advice to ensure you achieve your financial goals .
To identify which investment options are right for your individual circumstances or to find out more , please contact us . You can also email me at sam . hulson @ first-equitable . com
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