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Investing principles

December 2020

by Alex Savage

Focus on what you can control

The deep global economic shock and uncertainty surrounding the coronavirus (COVID-19) pandemic has made everyone rethink their finances and investments, making it clear that financial security is more important than ever to our overall well-being.

While it’s almost impossible to plan for a global pandemic, you should still have an investment strategy that grows with you throughout different life stages. Investing is a crucial part of any financial plan.

If you’re considering investing, whether it’s for the first time or expanding your current portfolio, there are some key things to remember. However experienced or sophisticated an investor you are, these are some basic principles that apply.

Establish a financial plan based on your goals

You have dreams of the life you have yet to live. Dreams that may include a nice home, travel to exotic places, and the time and money to live comfortably so you can look back and appreciate all that you have done. Whatever your goals may be, it is important to revisit your goals at regular intervals to account for any changes to your personal circumstances. Successfully achieving your investment goals doesn’t happen by chance. It needs vision, a long-term commitment and the help of professional financial experts to create and execute your strategy

Understand the reasons why you are investing

Start by thinking about your objectives and why you want to invest. The stock market tends to produce higher returns than a savings account in the long run because the interest rates on cash – and these are particularly low at the moment – don’t normally match the growth potential of shares. It’s important to consider how to maximise what you can afford to invest and how much time you need to remain in the market. Don’t try to time the markets, it’s nearly impossible.

Time-frame and risk tolerance for diversification

Diversification is an investment strategy wherein you spread your portfolio holdings across various types of assets throughout different sectors, and even in different countries. You need to know your comfort level with temporary losses and understand that asset classes behave differently. Don’t chase past performance. Remember, when you plan for a longer time-frame, you can take more risk with your investment. So it is crucial to consider the time-frame and risk tolerance for diversifying your portfolio.

Minimise taxes to maximise returns

Every investment has costs. Of all the expenses, however, taxes can have the greatest impact and take the biggest slice out of returns. The good news is that tax-efficient investing can minimise the tax burden and maximise returns. Remember, the higher your tax bracket, the more important tax-efficient investing becomes. The difference between pre-tax and post-tax investment returns can be substantial, and without a carefully planned tax-efficient investment strategy high earners, in particular, run the risk of facing formidable tax liabilities. Markets may be uncertain, but taxes are certain – so pay attention to net returns to minimise taxes and maximise returns.

Don’t join the herd and react to market noise

Investing comes with risks. Anyone who says otherwise is mistaken. But there are also risks in not investing – inflation being the most obvious. One of the keys to investment success is to avoid the noise from the plethora of omnichannel media sources. It’s easy to join the herd and react to market movements and short-term news flow. Investors are continually bombarded with headlines, charts and financial data over the internet and the press. Being bombarded with this information can evoke strong emotional responses from even the most experienced investors. Ignore this noise and your odds for success increase.

 


The content in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

 

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
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