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Here are the things you need to consider when selecting your investments.
1. Look at your particular goals and needs
You should take the time to truly think about what you want to achieve through your investments. By knowing these things, you’ll be able to know how much risk you can handle. So, make sure that you complete a Money fact find.
2. Think about the length of time in which you’d like to invest
This also includes the time period in which you’d like to regain your capital. The time period would vary according to various goals. This will also impact how many risks you can take and the type of risks. We’ll now look at an example.
In the event that you’re trying to come up with money for a deposit on a house that you want to purchase in a few years then you shouldn’t consider making an investment in funds or even shares due to the fact that their value is quite volatile. Instead, it is better to use a cash saving account such as Cash ISAs.
On the other hand, if you’re trying to create a pension savings that you’ll need in about 25 years then you don’t need to pay attention to the short term volatility in your investments but rather look at how they’ll perform over a longer period. In most cases, these long term investments besides cash savings accounts usually provide a much greater opportunity of overcoming inflation so that you can achieve your pension fund goal.
3. Create a wise investment plan
You should definitely stay away from any investment offers that are unsolicited. Also, before you make any type of investments, always look at the warning list and FCA register. Once you’re seriously thinking about a particular investment offer, make sure that you get unbiased advice from The City Of London Investment Trust.
When you become completely clear on what you require and your goals while figuring out the level of risk you can handle, you can then create an investment plan.
This will definitely ensure that you find the most suitable products for you.
In most cases, it is wise to start with Cash ISAs or other low risk investments.
Once you have done so, then you can move onto investments with medium risks such as unit trusts. Do note that these will be more volatile.
You should only think about engaging in higher risk investments after you’ve made both low as well as medium risk type of investments.
You also need to accept that when you make high risk investments that there is a possibility that you’ll lose that money.
4. Diversification
The most basic law of investing is that you should always diversify your investments so that you can increase the odds that you’ll have a good return. Keep in mind that to get a better return you’ll have to take on greater risks.
However, it is possible to balance your return and risk levels by investing your money into different types of investments and areas which are not too related. This is exactly what is meant by diversification.
This can go a long way in ensuring that you get growth will reducing your portfolio’s risk levels.
5. Determine how involved you want to be
If you don’t comprehend particular investments or financials products, make sure that you receive the best financial help before you make any purchases.
Remember, the amount of time you spend investing can be a little or as much as you want.
If you’d like to be hands on and particularly enjoy making your own investment related decisions then you’d probably want to purchase individual shares. However, before doing so you should know all of the risks.
If you don’t have any desire or time to be hands on or if you don’t have much money to invest, then you should consider investment funds like unit trusts and OEICs (Open Ended Investment Companies). In these type of investments, your cash is put together with the monetary investments of others in order to purchase a spread of different investments.
So, if you’re unsure on which route to go then you should get some sound financial advice. Make sure and check out our popular investment guide for more details.
6. Look at the charges
When you purchase investments such as individual shares directly then you’ll need to utilize a stockbroking service and then pay dealing fees.
On the other hand, if you’re buying investment funds, you’ll have to pay the fund manager certain charges.
Even if you require financial advice, you’ll still need to find a good financial advisor and pay them accordingly.
As you can see, no matter what you’re looking for you’ll need to pay charges and these will vary.
However, before you pay any fees and charges, always ask the firm to explain their fees so that you are aware of exactly what you’re paying for.
In many cases, bigger charges usually result in higher quality. However, you need to determine if the charges are sensible and determine if you can pay less elsewhere while receiving the same quality.
7. Investments you should avoid
You should avoid any high risk investments where you don’t understand how the investment works or the particular risks. You should only consider these type of investments after you have significant positive cash flow or savings from lower to medium risk investments.
With that said, there are certain investments which you should just completely avoid.
