Investing money needs to be approached extremely carefully as there are potentially expensive mistakes to be made. We’ve set out below 5 principles that we think can help you stay on the right track and should help to build your investment confidence.

Be careful of individual shares (or other assets)

From time to time we all hear great investment “tips”. It might be to buy shares in a particular company because they are about to skyrocket, or buy an apartment in the tourist destination “of the future”. Be very careful about investing too much in a single asset – putting all your eggs in the one basket has led to the ruin of many investors.

It’s much safer to spread your risk and build your wealth through diversified funds or pools of assets. This diversification will give you some protection against one of the assets you’re invested in going south. 

Volatility is a feature of investments

Stock market volatility has kept many an investor awake at night, worrying about the value of their investments. However volatility is simply a feature of markets, which can go up and down every day – the challenge for you (and us as your adviser) is to ensure as best we can that your investments are exposed to this volatility at a level that you are comfortable with.

If you are lying awake worrying about your investments, it’s time for us to talk. We’ll help you develop a portfolio that reflects your own specific appetite for risk.

Manage your own investment behaviours

Look at investment markets coldly and don’t allow emotion to cloud your judgement. There are countless stories of investors moving all their money into cash after markets have fallen sharply… only to miss a rebound. And countless others of investors piling more money into investments that have grown hugely… only to see markets correct themselves. Greed and fear are two of the greatest threats to a good investment strategy.

Remember your investment timeframe

If you are saving over the medium to long term, perhaps for your retirement, taking short-term tactical decisions is fraught with danger. None of us have a crystal ball that shows what the future holds, so trying to time the entry and exit points from markets is usually folly. Yes, develop a robust investment plan and adjust it as necessary. But let time be your friend, stay invested and don’t react to every short-term event in the markets.

Know the " Rule of 72"

Investors sometimes underestimate the power of compound interest. By leaving your money to grow over time, you can let this powerful force get to work, with growth each year being applied both to your original investment and to the growth gained to date.

To understand the impact of compound interest, it’s useful to know the “Rule of 72”. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for their initial investment to double. For example, a €1,000 investment that grows at 8% p.a. would take 9 years ((72/8) = 9) to turn into €2,000. Knowing this rule will help manage your expectations in relation to the performance of your portfolio, or will help you identify the return needed to double your money in a specific timeframe. This is only a general rule of thumb and we would always suggest getting independent financial advice before making any investment decisions.  

 Sitting on top of all of these is the value of expert advice. Let us help you to develop the right investment approach for you, and to then keep it on track.