6 principles of Investment Advice
- Have a plan and stick to it It is one thing to have a target, but a sound financial plan can be the difference between simply hoping for the best and actually achieving your goals. You can review your plan regularly with your financial adviser and make adjustments when necessary, but staying focused on your plan will help you to not be distracted by short-term market uncertainty.
- Think twice before putting money in cash. 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.
- Start investing early if you can As a general rule, the earlier in life you start investing, the better your chances of long-term growth. Compound growth (the ability to grow an investment by reinvesting the earnings) is a powerful force but it takes time to deliver. The right time to invest is when you and your financial adviser have formulated a clear financial plan that requires growth.
- Diversify & consider your investments as a whole When markets fluctuate, it’s all too easy to worry about the performance of certain investments while forgetting about the bigger picture. But when one asset class is performing poorly, others may be flourishing in the same market conditions. A diversified portfolio, can help to iron out the ups & downs & avoid exposing your portfolio to undue risk.
- Don't be a victim of 'activity bias'. This is the urge to ‘just do something’ in a crisis, whether the action will be helpful or not. When investments fall in value, it can be tempting to abandon your plans & sell them, but this can be damaging because you won’t be able to benefit from any recovery in prices. Markets go through cycles, short-term dips in the market tend to be smoothed out over the long term, increasing the potential for healthy returns.
- Ensure you have a tailored plan specifically for you Every single investor’s needs are different and, while the points above are good general tips, there’s no substitute for a plan that’s tailored specifically for you. What’s more, in volatile times, advice can help you take the emotion out of investing and provide an objective view. It may just be the best investment you ever make.