Taking an active approach to investing as opposed to putting money away in a savings account means more work, but the rewards could be greater over the long term. With savings rates pitifully low, there’s a definite case for investing in the markets.
Here are some pointers to bear in mind.
- Set an investment goal
Whatever it is that you’re hoping to eventually use your capital for will be important. If you’re looking to grow capital significantly for, say, a second property or to help your children through university, help finance their weddings, and maybe assist them getting onto the property ladder, then investing will be for the longer term.
Therefore, a steady approach to investing is possibly the best approach as you’re not relying on spectacular short term gains.
On the other hand, if your aim to try to make money quickly to help fund a medium term purchase – a holiday, say – and are prepared to accept a possible loss then riskier-yet-possibly-more-rewarding investment vehicles may be worth considering.
- Proactive or more passive investing
Are you interested in doing your own investing by researching the markets and making your own decisions, or does this idea fill you with dread? There are basically two options depending on your thinking:
Trading on your own – you’d be buying shares and selling them yourself albeit through a broker. If you’re a beginner or even relatively new, it can be a steep learning curve but there are various resources available to research companies, analyze trends and gain industry knowledge. For example, this resource from financial trading experts IG helps you to quickly become fluent in industry terminology.
Relying on expertise of others – here you’d invest through a collective fund by effectively purchasing different shares via an experienced fund manager. You don’t have to analyze and decide yourself what you’d invest in, your money is pooled with other people’s in a unit trust or OEIC (Open Ended Investment Company). That said, it’s still incumbent on you to choose a unit trust or OEIC that matches your investment goals and ‘risk threshold’, it’s just that this work is all completed with that initial decision.
- Spread your investments
The maxim ‘don’t put all your eggs in one basket’ is as true as it’s ever been for stock investments. Even if a particular sector – technology for example – seems a good choice for growth, don’t focus entirely on it. Spread your investments across other industry sectors and maybe other investment types such as commodities.
- Accept it’s a long game
Investing in the markets is definitely for the longer term; you need to accept losses but also appreciate these will likely be offset with a coherent and longer-term investment strategy over at least five to ten years. There are no guarantees of course, but statistics do show that longer term investments in stocks, shares and other assets such as commodities will likely outperform cash savings. Reinvest dividends to keep the growth going.
- Don’t panic during unusual circumstances
The sudden drop in the markets in the wake of the recent Brexit referendum in the UK caused a severe dip in stocks and shares. The markets dislike uncertainty, and markets drop when it’s in evidence. This wasn’t helped by the fairly widely held belief that the UK would vote to stay in the EU.
The point here is to be prepared for this type of occurrence and not overreact. As it happened, values have recovered but this type of situation can be quite alarming and force you into a rash decision.