Investing 101

History has shown us two things; firstly, the nature of investing is cyclical. Markets move up and down, at different times and rates to each other. Secondly, risk and return are strongly linked in investing. Generally speaking, the higher the return, the higher the level of risk. Investing for a longer time means that volatility has more of an opportunity to ‘smooth out’. Which means if you have a longer timeframe in which to invest, you might consider a more volatile investment – the ride might be bumpier, but overall returns at the end are more likely to be higher. The trick, of course, is to stay invested.

 

The psychology of investing shows that often investors will make long-term decisions based on short-term events. Its human nature to want to get out when the going gets tough – but think about it: selling when your investments aren’t worth as much as you’d like is similar to selling your house because the property market is down. The same goes for buying. When else do you wait for the price to get high before making a purchase?

 

Investing isn’t about ‘what’s hot’ and ‘what’s not’. The decisions you make about investing are serious and will have long-term consequences. It’s not easy to grit your teeth and hang on in the face of apparent adversity, or conversely, not to be tempted to hitch your wagon to what appears to be a rising star. But just remember – to get the best out of your investment, you need to be in it for the long haul. For better or for worse.

How much do you want to invest? For how long?  What are your expectations?  How do you feel about risk? What are your financial goals?  Where do you see yourself in 10, 20 or 30 years? Before you make any decision to invest, you need to ask yourself these questions. The answers will dictate the sort of investment portfolio you have.

Don’t keep all your eggs in one basket, no matter how attractive or safe that basket looks! Spreading your investments across a diverse range of assets, markets, industries, countries, fund managers and investment styles puts you in a good position to take advantage of the ‘ups’ and lessen the adverse impacts of the ‘downs’.

 

Investing regularly means you get more units when the price is low and less when the price is high. Over the longer term, this leads to the overall cost of your units averaging out at a lower price.

 

Do your research and know what you are investing in. A qualified financial adviser has the expertise and experience to help you make the best decisions for your financial future while taking your overall financial ‘picture’ into account.