1. Risk tolerance is not the same as guts
Emotion informs the risk you can take, sure. But Martin Bamford, managing director of financial planning company Informed Choice, says you should mainly assess your capacity for it. If your portfolio fell by 20 per cent, could you still feed the dogs?
2. Two words: drip feed
“Pound cost averaging” means if you invest monthly rather than in one go, any money you lose by putting it into a falling market should be made up for by the fact you’re buying the following months at a lower price.
3. Diversify, but not to the point of dilution
Only a rube would put all their eggs in one basket. Yet there is such a thing as overdoing it. If you have too many investment funds, you might find shares overlap and you aren’t as diversified as you thought. Rule of thumb: 20 funds is the limit.
4. Stash the cash
However bullish you’re feeling, keep cash savings you can get hold of immediately – three to six months of outgoings ideally. Put it in an easy-access or regular savings account with the best return you can find; the Marcus account by Goldman Sachs is one of the most competitive.
5. Whisky! (Well, for now)
Whisky is emerging as an exciting asset class. The Knight Frank Rare Whisky 100 Index, which tracks UK auction prices, increased 40 per cent in 2018 – a bottle of 1926 Macallan recently sold for more than £1 million.
6. Play the long game
Don’t try to time the market and don’t tinker. As investment company Nutmeg proves (based on UK stock market data since 1969), investing for just one day gives you a 55.2 per cent chance of making gains. Investing for ten years, however, gives you a 99.4 per cent chance.
7. Orchestrate a crash course in M&A
Quickly.
8. Don’t be a sheep
If something’s much talked about, it will have been priced into shares and you could overpay. See: new tech unicorns such as Peloton, which fell ten per cent on its second day of trading.
9. Ethical investing is not only good but lucrative
You don’t have to sacrifice returns to protect your principles. Some ethical funds have produced greater returns than their traditional equivalents. For example, the Rathbone Ethical Bond Fund delivered 10.2 per cent this year compared with 5.1 per cent for its Strategic Bond Fund.
10. Picking stocks? Only buy what you understand
Laura Suter of AJ Bell suggests, for example, that if you’re a regular at the gym, look at brands or supplement companies; if you like motorbikes, look at parts suppliers and manufacturers. “When you examine the company’s financials and prospects you’ll understand the market and the lingo.”
11. Turn up your BS detector
Sounds too good to be true? You’re probably being scammed.
12. Beware the mini-bond
Bonds might be considered safer than equities, but avoid hyped niche products offering stellar returns. Mini-bonds have been in the spotlight after the collapse of London Capital & Finance, which owes £237m to 11,600 investors.
13. Don’t invest for the sake of it
The whole point of making money is to fund the kind of life you want to lead. So how much money do you need to do that and when do you need it by? Invest to meet your life goals, rather than taking on risk for the sake of it.
14. Go for (a little bit of) gold
Prices of gold, a popular investment in times of tumult, have been soaring. Gold tends to move in a different direction from equities. You can buy physical gold, shares in mining companies or gold exchange traded commodities, which track gold prices. But Adrian Lowcock, chartered wealth manager for Willis Owen, suggests no more than five per cent of your portfolio.
15. Get into dope
Actually, you’re too late. The smart money got into the cannabis business years ago.
16. Don’t ignore your pension
No, it’s not sexy. But if you have spare cash to invest, use at least some of it to take advantage of the ultra-generous tax breaks that come with pension contributions.
17. Watch those fees
The cost of investing dents your returns. Mike Barrett, of consultancy The Lang Cat, says if you invest £100,000 over 30 years, the difference between a one and two per cent charge is more than £100,000 in lost value.
18. And avoid exit fees in particular
Wealth manager St James’s Place has been accused of ripping off customers by charging massive fees to customers wishing to leave. Hargreaves Lansdown has just scrapped its exit fees. Look for a firm that charges clear initial and ongoing charges only.
19. Don’t ditch trackers
Michael Burry, of The Big Short fame, has warned there is a bubble in passive investment as more and more people choose cheap tracker funds. Few agree. Funds that track indices such as the FTSE 100 are great low-cost options as part of a wider portfolio.
20. Buying an active fund? Check you’re getting what you pay for
Many “active managers” run closet trackers – the Financial Conduct Authority says £109 billion is tied up in them. Look at a fund’s factsheet and whether its top ten holdings are the same as its benchmark stock market index. If they are, be cautious.
21. Interested in art? Look at blockchain companies
Crypto is a very risky area, but last year Christie’s recorded the most valuable art auction ever on a blockchain, which is the technology underpinning Bitcoin et al, and said it reflected a growing interest across the art world.
22. Start investing early – even with small amounts
The eighth wonder of the world, according to Einstein, is compound interest. That’s one of the reasons investing in equities is so powerful if you reinvest dividends. Those who understand it earn it; those who don’t pay it.
23. Buyer beware
Rare watches, fine wine, vintage cars – all lucrative markets. Also, full of fakes. Just because Rolex Daytonas are generating big returns, doesn’t mean that particular Rolex Daytona will generate a big return.
24. Your home may not be the bulletproof investment you think it is
Buying your own property is a form of investment – one that will likely save you money as mortgages are cheaper than rents at the moment – but don’t assume house prices will always go up.
25. Don’t get cocky
There is skill involved in making money, but also blind luck. The investor’s worst enemy is his ego. Oh, and bragging about your investments? That doesn’t endear you to anybody.
26. Beware the busting of the second dotcom bubble
All those tech companies running big losses to secure explosive growth? Proceed with caution.
27. Know an investment banker
28. Be an investment banker
Read More
