Guide to Investing: 10 Key Principles

Investing allows you to build wealth over time and maximise compounding returns. It is considered one of the most important things anyone can do to create a healthy financial future. 

It's no surprise that investing can seem complex and daunting to many - especially in the current economic climate. 

There is an endless supply of market news, multiple investment choices and ever-changing market conditions, making it confusing to many first-time and even experienced investors.

However, there are some key principles to understand and follow to ensure you do everything possible to invest confidently and effectively meet your long-term financial goals.

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Here are our top 10 key principles that every investor should know:

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1. Set investment goals

Setting yourself investment goals is important as it keeps you on track to achieve your financial objectives. Additionally, a well-structured investment plan will help you stay committed to it.

When setting your goals, there are several things to consider, such as your age, attitude to risk and investment timeframe.

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2. Plan on living a long time

People currently aged 65 years in the UK can typically expect to live for approximately another 19 years for males and 22 years for females, and this is further expected to rise by 2045.[1]

Given this, investors should start investing early, invest with discipline and have a clear plan for their future.

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3. Cash is rarely king, and inflation eats away at your purchasing power

While cash may be a popular asset class for some, it is not always king.

When inflation occurs, it erodes the purchasing power of cash, making it less attractive long term.

Typically, cash lags behind other asset classes, such as bonds and stocks, meaning it will generally be worth less over time in terms of purchasing power.

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4. Focus on compounding! Start early and reinvest income 

Compounding is often called the eighth wonder of the world. Investing early and reinvesting income allows you can take advantage of compounding and build wealth over time.

Compounding is so powerful that if you delay investing by even just a few years or not choosing to reinvest income, it can make a significant difference to your long-term returns.

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5. Risks and returns typically go hand in hand, so be realistic about your objectives and  returns you can achieve

Naturally, you will want to achieve the highest return while taking on the lowest level of risk, but there is usually a trade-off involved. The higher the risk, the higher the return - and vice versa.

Therefore, to achieve higher returns, you must be able to tolerate large investment value fluctuations along the way.

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6. Volatility is normal, so keep a level head when others are losing theirs

Volatility is a normal part of investing. It's vital you don't let it irritate you, and remember, the best time to invest is usually when others are panicking.

When the markets are down, don't panic. Instead, stay calm and focus on your long-term goal.

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7. It is difficult to time the market. Staying invested matters

Timing the stock market is difficult, and it is often referred to as a fool's errand. By staying invested, you participate in the long-term growth of the market, which helps mitigate the effects of volatility.

Staying invested allows you to take advantage of opportunities that arise and means you can buy when prices are low and sell when they are high.

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8. Don't put all your eggs in one basket - diversify!

By investing in different types of investments, you minimise your risk while maximising your chance of success.

Over time, different investments will typically even out, so even if some investments underperform, the aim is to grow your money due to market movements.

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9. Review your portfolio regularly

Reviewing your portfolio means you can monitor progress, ensure it is performing as expected, and make any relevant changes if necessary.

This helps you stay focused on your long-term goal and be disciplined to continue investing.

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10. If it seems too good to be true, it usually is

Investments that promise high returns with little to no risk are generally too good to be true. There are many scams out there with people looking to take advantage of inexperienced investors.

Before investing, it is important to speak to a financial professional to help you understand the risks involved.

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What are your long-term wealth priorities?

When it comes to investing and planning your financial future, there are many options to consider making it challenging to know where to start.

Whatever your priorities are for long-term wealth, our first investment is to understand your goals and build a relationship with you.

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To discuss your plans or for further information, please contact us via form below.

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_{[1] The Office for National Statistics (ONS) – Past and projected period and cohort life tables: 2020-based, UK, 1981 to 2070}

THE VALUE OF YOUR INVESTMENTS MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

This guide is for your general information and use only and is not intended to address your personal investment requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice.