Investing can be a daunting task, to say the least. There are so many options to choose. Where does one start, and how does one ensure that suitable options are selected? There is market volatility wherever one looks, including the aftermath of the US election on the economy, the UK budget aftermath, the instability in the Middle East, and the US-China trade war.
Then, there is the market panic as stocks skyrocket and fall within days. It is easy to get caught up in the panic and make decisions based on emotions, not facts.
Before making any investment decisions, it is advisable to consider several factors, including receiving expert advice from a financial advisor.
What to look for when Investing / Tips for a good Investment Portfolio
Once the type of investment, investment term and risk level has been determined; the investor can now proceed in selecting funds, stocks and bonds accordingly. Here are some pointers to look out for when selecting the assets for an investment portfolio.
It is easy to fall prey to panic action when markets are volatile. For example, when markets went into recession during Covid or when markets fell due to geopotential events like the Ukraine war, the Middle East conflict or the nosedive of the Japanese economy. Many investors went into panic mode and, to their detriment, sold off shares that were underperforming.
Always consult with a financial advisor before making any financial decisions. Keep emotion and anxiety out of the equation. Investing is a long-term endeavour designed to smooth out market highs and lows.
It is essential to do the homework. Research stable companies that have a history of good performance over the long term. Companies that have been around for a long time and are established. Look for reputable funds that have a history of good performance and resilience. A financial advisor has the skills, knowledge, and economic experience to advise on the best possible solutions according to the investor’s risk profile and needs.
Diversification is a vital tool to help minimise investment risk and mitigate against market volatility and instability. This financial strategy helps spread the risk of losses over various baskets instead of keeping all eggs in one basket.
Diversification can be spread out over various asset classes like equities or stocks of companies, fixed income like bonds of companies and various governments, cash or cash equivalents, real estate and alternatives, to name but a few. Each asset class is a grouping of investments that has its own unique characteristics. What affects one asset class does not necessarily affect another. So, if one asset class performs poorly, the other asset classes in the portfolio will not be affected or affected only slightly.
Ensure that investments are earning compounding interest. Over time, compounding interest makes a massive difference in capital.
An investment of £200 a month over 20 years with 7% compounding interest amounts to £104,185. That is £48,00 in capital contributions and £56,185 in compound interest. With time, the interest on an investment could be worth more than the capital.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your financial advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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