Simple tips for long term investing

1. Establish a plan

Having established that you’d like to invest your money you need to formulate a plan, taking into consideration a few questions: How much can I invest? What can I afford to lose?  What is the goal of my investments? How long am investing for to reach that goal? Do I know all the relevant investment definitions and terminology? Speak to your trusted advisor to help you to establish your investment plan!

2. Understanding Risk

Understand your risk tolerance and how you would feel if you lost some or all of the money invested. A common mistake for first time investors is to believe they are more tolerant of loss than they actually are, so when riskier investments start to decline, they often panic and sell. Taking a considered approach to risk and reward will insure you invest in line with your capacity for loss. Remember, anything you do involves risk – this also includes holding cash as its buying power can be gradually eroded by inflation.

3. Understand all the characteristics of the product you will invest in

Make sure that you know the objectives and risks of the product you will hold. Before investing,make sure that you understand the costs, benefits and contractual conditionsfor the product.

4. Diversify

As different markets rise and fall, a diversified portfolio of different types of investment funds can help to stabilize your portfolio over an economic cycle. Investing exclusively in particular markets, sectors or companies can leave you exposed to unforeseen issues occurring in one particular area. Investing across a range of asset classes, regions and sectors helps to mitigate potential loses and maximise long-term returns.

5. Don’t Chase 'hot' tips

The internet and media are full of punditry on shares or funds that are about to be the next best thing. Although these ‘tips’ can sometimes be insightful, be careful not to chase them and constantly change your portfolio to take advantage of them by picking suitable investments to add to your portfolio.

6. Invest don’t speculate

One of the most influential investors of history, Warren Buffet said “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. Though penny shares with their perceived potential for high returns through “cancer cures” or “prospective oil field” can be very enticing, you need to consider what the long-term future value of the company is. Very small companies can be riskier purely due to the fact they may be less well regulated than the larger, multinational corporations.  It’s false to think that taking increased risk guarantees you more money.

7. Monitor your portfolio

Monitor your portfolio performance in order to be sure that it is in line with your risk profile. Remember however that you are investing for the longer term so don’t be influenced by short term market fluctuations.

8. Invest regularly

Investing little and often is sometimes better than investing larger lump sums. Research has shown that even professionals find it is often better to invest regularly, rather than to try time the market investing a one off lump sum. In volatile times you may also benefit fromCost Averaging, where by investing regularly, you seek to even out the highs and lows of the market. By starting to invest early and regularly you can take advantage of compounding.

9. Reinvest

Unless you are looking for specific periodic income from your investment then you might consider reinvesting any capital returned from funds or dividends back into your investment portfolio. History has shown that re-investment of dividends from equities vastly increases your returns over the long-term.

10. Review

Once you start investing, remember it’s a continuous process so you need to periodically review your investments, personal circumstances, timeframes and risk tolerances, as all of these will change over the course of time. For example, as you get closer to your goal you may want to reduce your exposure to riskier investments to try and secure your capital. In addition to assessing your own personal risk tolerance, check your portfolio’s risk profile. As different top investments funds change in value it will adjust their weighting in your portfolio and this will affect the overall risk profile of your portfolio. Periodic rebalancing of your portfolio seeks to readjust this back to the desired level. It is therefore important to speak to your investment advisor on a constant basis so that your portfolio is kept up to date as your circumstances change.

11. Stick to your plan

Once you start investing for the first time you’ll realise it’s very hard to ignore the chatter about market movements, commodities, share tips, inflation, interest rates, dividends, gold price, oil price…it’s endless and is near enough constant with globalised markets.  A true investor should be looking at long term trends and macroeconomic factors that originally shaped their plan and always keep these as their focus.

 

On each and every point mentioned, we are committed to always be at your disposal in order to guide you in your investment journey.