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Six principles of investing

Putting aside money for your future and getting it to work for you Whatever stage of life you’ve reached and whatever plans you may have for the future, you want your money to earn the best return possible without taking undue risk. That’s why it’s important to invest in a way that’s right for you and that will meet your goals.

Making the right choices to invest for your future can seem complex. But with the right investment strategy in place you can ensure you are able to make informed decisions to secure the financial future you want.

How much control do you want over your investments? Investing can seem daunting but you don’t have to do it all on your own. So what do you need to consider?

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Looking to invest for a better future?

Your investment goals will change throughout the course of your life. And depending on which side of the coronavirus (COVID-19) financial equation you’ve been on, the last year has been possibly the strangest year ever for your investments.

We’ve experienced a stock market collapse, soaring unemployment, millions deferring their mortgage payments — and a booming housing market, plus bulging savings accounts.

Uncertainty and volatility in markets. General economic factors, business conditions and political events are all part and parcel of investing throughout life’s journey. Over any given time period we can expect to see the economies go through a series of ups and downs leading to uncertainty and volatility in markets — which is why you need to take a long-term view.

It’s also important to remember that there is a big difference between saving and investing. Some investors may think of cash as a safe haven in volatile times, or even as a source of income. But in an era of low interest rates, the returns available on cash will be depressed to near zero, leaving cash savings vulnerable to erosion by inflation over time.

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Reviewing your needs and goals – take time to think about what you really want from your investments?

You need to consider what you really want from your investments. Knowing yourself, your needs and financial and lifestyle goals, and your appetite for risk is a good start.

Consider your reasons for investing. It is important to know why you are investing. The first step is to consider your financial situation and your reasons for investing.

For example, you might be:

• looking for a way to achieve higher returns than on your cash savings

• putting money aside to help pay for a specific goal, such as your children’s or grandchildren’s education or their future wedding

• planning for your retirement

Determining your reasons for investing now will help you work out your investment objectives and influence how your investments are managed in future.

Decide on how long to invest. If you are investing with a specific financial and lifestyle goal in mind, you have probably got a date in mind too. If you have got a few goals, some may be further away in time than others, so you’ll need to have different strategies for your different investments.

Investments rise and fall in value, so it is sensible to use cash savings for your short-term goals and invest for your longer-term goals.

Short-term. Most investments need at least a five-year commitment, but there are other options if you do not want to invest for this long, such as cash savings.

Medium-term. Committing your money for at least five years opens up a selection of investments that might suit you. Your investments make up your ‘portfolio’ and if appropriate should contain a mix of funds investing in shares, bonds and other assets, or a mixture of these, which are carefully selected and monitored for performance.

Long-term. Let us say you start investing for your retirement when you’re fairly young. You might have 25 or 35 years before you need to start drawing money from your investments. With time on your side, you might consider riskier funds that can offer the chance of bigger returns in exchange for an increased risk of losing your money.

As you approach retirement, you might sell off some of these riskier investments and move to safer options with the aim of protecting your investments and their returns.

How much time you have will make a big impact on creating your investment portfolio. As a general rule, the longer you hold investments, the better the chance they will outperform cash – but there can never be a guarantee of this.

Establish an investment plan

Once you are happy and have set your financial and lifestyle goals, the next step is to get your investment portfolio in place. We will help you identify the right type of investment options suitable for you.

Build a diversified portfolio

Holding a balanced, diversified portfolio with a mix of investments will help protect it from the ups and downs of the markets. Different types of investments perform well under different economic conditions. By diversifying your portfolio, you can aim to make these differences in performance work for you.

Diversifying your portfolio in a few different ways through funds that invest across:

• different types of investments

• different countries and markets

• different types of industries and companies

A diversified portfolio is likely to include a wide mix of investment types, markets and industries. How much you invest in each is called your ‘asset allocation’.

Make the most of tax allowances

As well as deciding what to invest in, think about how you will hold your investments. Some types of tax-efficient accounts normally allow you to keep more of the returns you make. It is always worth thinking about whether you’re making the most of your tax allowances too.

You also need to bear in mind that these tax rules can change at any time, and the value of any particular tax treatment to you will depend on your individual circumstances.

Review your portfolio periodically

Periodically checking to see if your portfolio aligns with your goals is an important aspect of investing.

These are some aspects of your portfolio you may want to check up on annually:

Changes to your financial goals.

Has something happened in your life that calls for a fundamental change to your financial life plan? Maybe a change in circumstances has changed your time horizon or the amount of risk you are willing to handle. If so, it is important to take a hard look at your portfolio to determine whether it aligns with your revised financial goals.

Asset allocation. An important part of investment planning is setting an asset allocation that you feel comfortable with. Although your portfolio may have been in line with your desired asset allocation at the beginning of the year, depending on the performance of your portfolio, your asset allocation may have changed over the period in question.

If your actual allocations are outside of your targets, then perhaps it is time to readjust your portfolio to get it back in line with your original targets.

Diversification. Along with a portfolio with a proper asset class balance, you will want to ensure that you are properly diversified inside each asset class.

Performance. Look at whether there are certain aspects of your portfolio that need rebalancing. You may also want to consider selling to help offset capital gains you might take throughout the year.

ONCE YOU’RE HAPPY AND HAVE SET YOUR FINANCIAL AND LIFESTYLE GOALS, THE NEXT STEP IS TO GET YOUR INVESTMENT PORTFOLIO IN PLACE. WE’LL HELP YOU IDENTIFY THE RIGHT TYPE OF INVESTMENT OPTIONS SUITABLE FOR YOU.

Getting my finances in order

When it comes to making financial decisions, you don’t have to go it alone The coronavirus (COVID-19) pandemic outbreak has affected people in various ways. However, this has undoubtedly been a time for contemplation surrounding our personal finances. Many have taken the new-found time at home to conduct a review of their finances, to assess necessary and unnecessary expenditure. While uncertainty with the job market continues, a tighter grip on finances is key.

Tracking your finances gives you a baseline to help track your progress and helps you to see spending mistakes before they become disastrous personal finance problems. Even if you have a solid financial plan in place, it still needs to be updated regularly to ensure it reflects any life changes. But what should your priorities focus on now? Is it time to turn your attention to your pension, ISA or your mortgage, or something else? Should you be thinking about investing more for your children’s education or putting an estate plan in place? And then there are those previous company pension schemes to review – is it three, four…or was it five? Sound Familiar?

If you’re unsure what diagnosis to give your current money situation, maybe it’s time to consider a financial health check. But where do you start? Read on for hints and tips to assist.

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