What do you want from your investments? Are you looking to supplement your income or build your retirement pot? It is essential you tailor your investments to suit your goals. To understand your personal investing goals, you need to take into account all the needs and preferences that may shape your financial life.
Fairstone’s Head of Portfolio Management, Oliver Stone looks at 10 things to consider when investing.
Before investing it is important to discuss various aspects of risk with your adviser, including your risk tolerance, risk appetite and risk capacity, to ensure the solution recommended is appropriate.
The overall risk level of your investment will partially depend on your time horizon. If this is short, then it may not be appropriate to invest at all, but the longer the time horizon, generally the more risk can be taken.
It is always prudent to retain an emergency cash fund to safeguard several months’ spending should it be needed quickly.
The underlying cost of any investment is an important determinant of overall return over the long-term. A balance of lower and higher cost strategies can be employed in a portfolio to control costs.
Diversification is crucial to reducing volatility within your portfolio and to improve return generated per unit of risk. Investing across different asset classes, geographies and investment styles will avoid your portfolio becoming overly concentrated in one particular area.
Assuming satisfaction with your underlying investments, rebalancing your portfolio provides an important ‘automatic stabiliser’ effect by taking profits from winners and topping up laggards.
Timing tactical entries or exits from markets (second guessing) is extremely difficult to do well consistently, and should be avoided, particularly by long term investors. Missing out on the markets’ best days can be extremely damaging to returns in the short and long-term.
Similarly, try not to take decisions emotionally. Once you have an investment plan and portfolio structure that you are happy with, it is important to consistently apply it to avoid deleterious long-term outcomes.
Have a core set of criteria with which to judge your holdings’ performance to avoid making suboptimal decisions.
Comparing investments against a reasonable comparator is critical to their regular evaluation. This applies to your overall portfolio as well as your individual underlying portfolio holdings.
In a recent Fairstone client survey, more than 65% of respondents said that their attitude to risk had not changed over the course of their lifetime, showing that these investors understand the importance of long-term planning and not playing the market.
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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.