Investment Rules You Must Know

investing-rulesHere are some tips or basic rules to follow when making investments. By keeping them in mind you can get the most out of your money and feel confident in your decisions. Keep in mind it is okay to experiment a bit if you are feeling adventurous but when it comes to your key assets like your pension or life savings be sure to talk with a financial adviser about what you need and what your plans are. Their knowledge and experience will very probably save you from possible future problems.

The Rules

  1. Think about the length of investment you want. Make a plan for how long you want to invest for, often that is a minimum of five years to get any reasonable growth from it. Longer is better though to get any profit over inflation.
  2. Decide what your comfort level is and know your ATR (Attitude to Risk profile). There are a number of online questionnaires you can complete to assess your risk profile and this is one of the primary things an adviser would do for a client.
  3. Assess how much in the short or medium term you can afford to lose from your investment. It is important to have a clear outline in your plans on what you can afford to lose so that you can spread out your money based on the risk level.
  4. Decide on whether you are looking for income or growth from your investment. Younger clients often want to get high growth in their first years of investment to increase their wealth above inflation. Clients who are more mature and are close to retirement are more focused usually on tax saving benefits and having more income options.
  5. Make sure you know what your tax status currently is. There are a lot of different investment products and opportunities on the market nowadays so you need to know what your level of taxable income is and which of those investment products will give you benefits in the long term.
  6. You should always have your investment split between adventurous, medium and low risk funds. Low risk securities would include deposits and fixed interests, high or adventurous risk would include stock markets and private shares and stocks, and medium risk would include gilts and bonds, and distribution.
  7. Make sure you review your previous investments. Learn from them so that you understand what worked and what did not, including looking at the spread and the timing and so on.
  8. Have a backup plan in case the market rises or falls sharply. Make a decision now what you are going to do if the investment goes up or down in the early years. Knowing your reaction will help guide you on how you build your portfolio in terms of short, medium and long term investments.
  9. Review your portfolio on a regular basis. Even if it is just a few minutes a week you should take a look at what is happening and make sure you understand why. This may lead to re-balancing your portfolio to adjust the risk levels.
  10. Try to keep your investments diversified. Do not place all your money into one basket as if something happens to that basket that is everything gone. Spread out and diversify across not just one market sectors but several like Mutual, Banks and Insurance.
  11. Use tax incentives when investing. Get relief wherever you can in allowances, deferrals, thresholds, tax free status and so on.
  12. Use an experienced independent financial adviser.