So you have decided to be your own financial adviser and become a DIY investor. Plenty have over the last few years, but many have failed to make their hard earned life savings work for them as well as they could have.
Investing successfully takes a lot of discipline and commitment to get good long term results. So here are my 7 simple rules to follow to help you make the most of your savings and investments.
1. If you don’t understand what you are investing in, don’t put your money into it.
Many investors have either been sold or bought an investment where they do not fully understand the risk that they are taking or even how the investment works. Make sure you understand what you are putting your money into first.
2. Timing the market is all but impossible
I often hear people ask, “When is the best time to buy?” or “should I sell now?” The reality is that no one knows the answer to that question as it’s impossible to judge where the top or the bottom of the market is, until well after the event. Even the world’s most savvy investors cannot answer this question. The best investors choose investments that they believe offer fair value now and have the long term potential to make a profit.
3. Do not be too active
Not only is trying to time the market not a smart move, but also too frequent changes to your investments is not healthy for your investments either. The more you make changes the more cost you will incur and this will reduce your profits. If you feel you need to change your portfolio, make sure that you have solid reasons to do so.
4. Have a diversified portfolio, but do not have too many investments
Having a diversified portfolio is essential to ensure that you do not have all your eggs in one basket. However, you can overly complicate your investment portfolio by having too many investments. It then becomes very difficult to manage and maintain. No more than 20 different investments, should give you sufficient spread of risk.
5. Do not put money into an investment, just to avoid tax
There are a multitude of investments on offer that can be used to offset or reduce your tax liability. However, as you would most likely expect, there is no such thing as a “free lunch” and the benefits generally come with additional risk. The danger is that you may well avoid the payment of tax, but you may not get your money back in full.
6. Do not invest in a company just because the price is cheap
Many investors get tempted into buying an investment because the share price is cheap and are tempted into thinking a small share price movement will result in a significant profit. Firstly the share price is probably low for a good reason. Savvy investors look for investments that offer good value, not investments that look cheap.
7. Regular reviews and track how your investments are performing
One of the biggest failures of DIY investors is that many do not keep their investments under review. A decision to buy is often made, but then not it is not monitored or reviewed. The information that you need to know are – What returns are you making annually – Is it still performing well relative to other similar investments – Does the investment still match your attitude to risk – Do other investments offer a better opportunity to make a profit.
The above article should not be construed as advice and should not be seen as such. Always seek professional financial advice before making any decisions. If you require investment advice for future planning please contact us as Midlands Investment Agency or call us on 01902 742221.