When it comes to investing, it’s important to keep several fundamental principles in mind.
Set your investment goals
Before you start investing, it helps to have an idea of why you want to invest, how long you’ll invest and your attitude to risk. There are many types of investments to choose from, so selecting one that will help you reach your particular goals is essential. Professional financial advice is always a good place to start.
Start early, invest regularly and reinvest the returns
The earlier you start investing, the more time your investments have to grow. And the more regularly you add to your investments, the quicker they can grow. Putting income or interest from an investment straight back in could make a difference to how quickly your wealth builds.
People say “don’t put all your eggs in one basket” for good reason, especially when it comes to high-risk investments. Diversifying can help prevent loss during market downturns because different types of investments are less likely to be adversely affected by the same market developments. For example, if you have investments in property and shares, your share investments are unlikely to be adversely affected merely because the property market goes down.
Time in the market is more important than timing the market
Investment markets are constantly changing and it can be difficult to say a certain time is better for investing than another. By staying in the market for as long as possible, you have the potential to reap the benefit of long-term trends.
Use dollar-cost averaging
Dollar cost averaging is an investment strategy designed to reduce risk. It involves making many smaller investments over time (instead of all at once) so risk is spread throughout market cycles. For example, if you use dollar cost averaging you might invest $1,000 every week for 100 weeks rather than investing $100,000 in a single investment.
Consider a multi-manager approach
Multi-manager portfolios combine the investment management skills of a number of specialist investment managers to build diversified investments. The aim is to minimise risk, particularly in fluctuating market conditions, by spreading your investments across a range of management styles and expertise.
When it comes to investing, it pays to seek good advice. A professional financial adviser can help you understand the types of investments that may suit you and help you reach your goals. It’s also a good idea to do your own research and gain a broad understanding of the different types of investments you’re interested in.