It can be intimidating to consider all of your options, strategies and investing methods as a first-time investor, especially when many don’t even know where to start. David Miller, Director of Investments at Quilter Cheviot, explained how to start an investment journey and the best practices to keep in mind.
A common misconception is that investment markets are a ‘get-rich-quick’ way and while this is possible in very specific circumstances, it requires a lot of experience, knowledge and often just luck to get there. the.
Starting small with the goal of earning a certain amount over a period of time already helps narrow down the options available.
“In general, people invest either to obtain a constant stream of income, or to generate capital growth, or a combination of the two.
“What you want to achieve will affect the investments you choose. If you just want to get rich quick, forget it.
Decide how much risk you are willing to take
Mr. Miller continued, “As part of setting your goals, you need to think about when you’re going to need the money – and therefore how long you can stay invested – and how much risk you’re willing to take. take.
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“Everyone is different, but as a general rule, the younger you are or the longer the time horizon for which you invest, the higher your risk profile can be. “
Many newbie investors go for a low risk investment which will hopefully generate low returns in the future. However, even high risk strategies can be a safe option.
The longer period that the investment remains in a high risk investment reduces the total amount of risk they face with that one time investment, but it is always important to remember that every investment has a risk factor.
“It’s important to consider your loss capacity as well. If you were to lose all the money you invested, how would that affect your lifestyle?
Choose what to invest in
“Once you’ve done that preliminary work, you can think about how you’ll actually allocate your money and what you’ll invest in,” Miller said.
“Generally speaking, the more risk you are willing to take, the more you need to invest in stocks and less in cash and fixed interest, with alternatives acting as a stabilizer in times of market stress.
“It’s worth having about five percent of your portfolio in cash to exploit market opportunities,” he commented.
There is a wide range of options to invest in, from assets to stocks and sustainable investing, and a diverse portfolio with “a bit of everything” has proven to be one of the most successful strategies.
“Remember to invest in a variety of funds in various geographies and asset classes to properly diversify the portfolio.
“Portfolio diversification will reduce the correlation between the underlying assets, which means that when one part of the portfolio is affected, another kicks in and helps protect value.
“Also consider liquidity when building your portfolio,” he added.
“Often people don’t think about it until it’s too late.
“Listed investments, such as publicly traded stocks, will be much more liquid than a direct real estate investment.”
Then there is also the option popular among first-time investors: funds.
“Unless you want to spend hours analyzing the business, investing in funds or trusts would be more appropriate than investing in individual stocks. “
Mr. Miller continued, “In addition, there are additional diversification benefits to selecting a fund or trust, as the manager will own a number of stocks.
“You will have to choose between an active fund, where a fund manager adjusts the portfolio according to the current investment landscape, or a passive fund, where the investments follow an index such as the FTSE 100. You may well go for it. for for a combination of the two.
“After you’ve set your asset allocation and selected various funds that you feel are appropriate, you need to keep an eye on your portfolio, but avoid the temptation to make adjustments at the first sign of trouble.
“Investments should be held for years, if not decades, so as long as the investment case remains intact, don’t get off the ship at the first sign of volatility,” Miller said.