Investing is one of the most common ways in which both companies and individuals try to grow their assets. Creating an investment portfolio with an eye towards achieving that goal is the core of financial advice.
For this to be successful though, there has to be some kind of guiding strategy behind the investments. An advisor or wealth manager who adopts a random, scattershot approach will not produce the results that his or her clients are hoping for.
That is why there are principles behind investing that professionals generally look to follow. In this piece, we will be outlining each of these to give you a better understanding of them.
Set out an investment plan
The first of these principles is to put together a detailed plan before actually investing any of your existing cash. This plan should outline what exactly you wish to achieve through investing – whether you are running a business or simply investing personal financial assets. That will enable you and your advisor to determine roughly what returns you will need on your investments.
This plan should also be a roadmap for how you will get to your desired end point, whether it is income or asset growth.
Think small to begin with
Many people believe that sizeable sums are needed before you can consider investing. The term ‘wealth manager’ understandably creates that impression, but these professionals often deal with those who expect to be rich in the future, as well as those who are already well off.
Investing small amounts of a lump sum, or a portion of your monthly income, can provide you with a useful financial cushion.
Have patience
The point of investing is that it will bring long term returns, so patience is necessary. Avoid hasty decisions based on fluctuations in the market and stick to the plan for achieving your goals set out at the start.
Diversification is good
It is never a good idea to invest all of your money in one class of asset. Equities are high risk while bonds are lower risk, but a good financial advisor in Shropshire or anywhere else will always select a mixture of investments. That way, risk and reward are well balanced.
Exploit tax allowances
Tax-efficient investments are better because less of the money you make on them will have to be paid out in taxes. This is another area where a professional can identify such investments, such as those inside Individual Savings Accounts (ISAs), which have tax reliefs of up to £20,000 a year.
Keep a clear head
An investment should always be made with a clear head, so emotions cannot be allowed to cloud decision-making. You cannot afford to let either fear of losses or greed determine your choices. Most people get the help of an independent financial advisor partly for their expertise, but also because they are not emotionally involved.
Prepare for ups and downs
Investing is not an exact science and even the best financial advisor cannot guarantee success every time. There will inevitably be downs as well as ups, with investments performing poorly or market slumps, but you should have a plan in place to mitigate them.
Set realistic time limits
There should always be time limits set when putting your money into investment opportunities. These mark the time you are prepared to wait for an investment to produce a return. How long the limit is should be determined by what the underlying goal is: if it is to grow your retirement income, it can be set further in the future than if it is for the education of your children.
The time limits must be realistic though, because very few investments start producing serious financial returns overnight.
Review regularly
Your investments should be subjected to regular reviews to see how each is performing. These reviews will allow you to check whether your portfolio remains aligned with what you want to achieve, as well as making sure that you are still comfortable with the level of risk involved in them.
It is a key principle that you should not be afraid to change either your initial plan or your investment strategy if need be.
Get the help of a professional
Unless you happen to come from a finance background, it is unlikely that you will have the sort of detailed market knowledge needed to put together a diverse investment portfolio. That is precisely what a wealth manager can offer you.
They will work with you at every stage to ensure that risk and reward are balanced and to give you the best chance of achieving your ambitions.
These are the 10 principles that are at the heart of a solid investment strategy. If you follow them as closely as possible, you cannot go far wrong.
