[Estimated time to read: 1.5 minutes]
If you stick to these five basic principles of investing, we promise you won’t go far wrong…
1) Keep costs down
Keep costs down by using low cost exchange traded funds (ETFs) or index tracking funds where possible.
Most good financial advisers will also have negotiated discounts on actively managed funds, and can pass on the discounts to you, which can also help keep costs down.
This is perhaps the most complicated part of investment management, and getting this right can make a big difference over time.
You may need some help getting started with this. But one thing it is commonly agreed you must do is diversify.
If all of your money is in one asset class – equities, for example – and that asset class falls out of favour, your portfolio will take a big hit.
By spreading your investments around different assets you will help minimise some of the downturns and take advantage of more of the upturns.
3) Invest regularly
Investing is a discipline. You need to have a plan and stick to it. Once you know how much you can invest each month, invest it without fail – regardless of what markets are doing (see point four).
4) Don’t react to the markets
Reacting to market movements isn’t investing… it’s trading and is a full-time job for professional people – most of whom still get it wrong most of the time anyway! Buy good funds and trust the managers.
5) Don’t be sold to
Once you have created your investment portfolio, stick to it.
Do not let anyone make you stray from your path with the unlikely promises of “guaranteed” or “amazing” returns. There is no short-cut, just persistence and discipline.
If it sounds too good to be true, then it almost certainly is.
But, if you remember these five golden rules and hang tight, even in worrying times (like now), you should be OK.