The deep global economic shock and uncertainty surrounding the coronavirus (COVID-19) pandemic has made everyone rethink their finances and investments, making it clear that financial security is more important than ever to our overall well-being.
While it’s almost impossible to plan for a global pandemic, you should still have an investment strategy that grows with you throughout different life stages. Investing is a crucial part of any financial plan.
If you’re considering investing, whether for the first time or expanding your current portfolio, there are some key things to remember. However experienced or sophisticated an investor you are, there are some basic principles that apply:
- Establish a financial plan based on your goals – You have dreams of the life you have yet to live. Dreams that may include a nice home, travel to exotic places, and the time and money to live comfortably so you can look back and appreciate all that you have done. Whatever your goals may be, it is important to revisit your goals at regular intervals to account for any changes to your personal circumstances. Successfully achieving your investment goals doesn’t happen by chance. It needs vision, a long-term commitment and the help of professional financial experts to create and execute your strategy.
- Understand the reasons why you are investing – Start by thinking about your objectives and why you want to invest. The stock market tends to produce higher returns than a savings account in the long run because the interest rates on cash – and these are particularly low at the moment don’t normally match the growth potential of shares. It’s important to consider how to maximise what you can afford to invest and how much time you need to remain in the market. Don’t try to time the markets, it’s nearly impossible.
- Timeframe and risk tolerance for diversification – Diversification is an investment strategy wherein you spread your portfolio holdings across various types of assets throughout different sectors, and even in different countries. You need to know your comfort level with temporary losses and understand that asset classes behave differently. Don’t chase past performance. Remember, when you plan for a longer timeframe, you can take more risk with your investment. So it is crucial to consider the timeframe and risk tolerance for diversifying your portfolio.
- Minimise taxes to minimise returns – Every investment has costs. Of all the expenses, however, taxes can have the greatest impact and take the biggest slice out of returns. The good news is that tax-efficient investing can minimise the tax burden and maximise returns. Remember, the higher your tax bracket, the more important tax-efficient investing becomes. The difference between pre-tax and post-tax investment returns can be substantial, and without a carefully planned tax-efficient investment strategy high earners in particular run the risk of facing formidable tax liabilities. Markets may be uncertain, but taxes are certain – so pay attention to net returns to minimise taxes and minimise returns.
- Don’t join the herd and react to market noise – Investing comes with risks. Anyone who says otherwise is mistaken. But there are also risks in not investing – inflation being the most obvious. One of the keys to investment success is to avoid the noise from the plethora of omni channel media sources. It’s easy to join the herd and react to market movements and short-term news flow. Investors are continually bombarded with headlines, charts and financial data over the internet and the press. Being bombarded with this information can evoke strong emotional responses from even the most experienced investors. Ignore this noise and your odds for success increase.
Time to take a fresh look at your finances?
Planning your investment goals is essential if you’re going to have a real chance of achieving them. A financial review is a great way to take a fresh look at your finances and plan for the journey ahead. More importantly, it enables you to talk through your long-term financial objectives and discuss with us a way forward to deliver your plan to achieve them. Contact one of our independent financial advisers here.