So, you have been wondering whether you should invest, and after carefully weighing up the pros and cons of investing for growth you have decided to go for it.
But how do you work your way through the bewildering array of investment options and work out which ones are the best fit for your needs?
A qualified independent financial adviser can help you make sense of the investment products on offer and help you build an investment portfolio by working through your answers to some key questions. This is often referred to as completing a ‘fact find’.
What do you want to get out of investing?
It’s worth really thinking about your goals for your money and take a good look at where you are financially. You need to think through the various scenarios the future might have in store, as well as identifying the money you will have available in each. You should look through things like how much disposable income you have every month, how your current assets such as property, savings and pension are performing, and any debt that you have. You should then balance these against your income projections and your money goals.
What is your appetite for risk?
How risk averse you want to be will affect the products that you should invest your money in. The risk that the institution you have invested in may fail, that your investment will grow at a slower rate than inflation, and the risk of share prices going up and down are very real and need to be thought through. It’s all about striking a balance and will depend on how much risk you can tolerate, how much you could afford to lose, and things like the time frame and any goals for returns you may have.
Making a plan
Once you have spent some time carefully considering your financial situation and aspirations it is time to work with your financial adviser and make a plan. Many people start with low risk investments such as ISAs, then supplement these with some medium risk investments that may be more volatile if your risk appetite can tolerate that.
It’s probably only advisable to start thinking about higher risk investments once you are building up a decent portfolio of low and medium risk products, and only do so if you could potentially afford the risk of losing the amount of money that you put into them.
How much time do you have?
You can spend a lot of time on your investments, or you may choose to make investments that are less labour intensive.
If you want to be very hands on, and are very confident that you know the risks, you may choose to trade stocks and individual shares yourself.
Or, if you either don’t have a lot of time or a lot of money, then you may chose to put your money into an investment fund like a unit trust where your investment is managed and put together with that of other investors to buy a spread of investments.
Manage the risk
One way to help you smooth out any bumps in the growth of your higher risk investments and still achieve growth is to diversify. Simply put, these means that you spread your money out into different types of investments and sectors to reduce the likelihood of losing it all at once. It’s kind of the opposite to putting all of your eggs in one basket!
Monitoring your money
You should always keep an eye on your investments but stock watching isn’t always productive, as you may be tempted to move your money every time prices rise or fall. If you are investing over a longer time period, and we always recommend a minimum of five years for any investment plan, you can simply ride out these fluctuations.
The benefits of advice
If you get proper professional advice about your investments its more likely that you get a product which is suitable for your goals and circumstances. You may also get access to a bigger range of choices than you’d be able to yourself, and have more protection if things go wrong.
Contact us if you are thinking about investing and we will be more than happy to help.