This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).
How do you get higher investment returns and grow your wealth? This is usually the motivation behind wanting to become a better investor. Yet people have different understandings about what investing is, and how to do it successfully. Here at WMM, our team in Oxford offers their thoughts on what defines investing – and how to invest effectively.
In simple terms, investing involves putting money towards something that you expect will return more value in the future. For some, that future could be closer – i.e. measured in weeks, days or even hours. This can lead them to “play the market”, buying individual stocks in the hope that they will rise in value and selling those which they expect to fall. Such a game is incredibly hard to play well, consistently – even for professional investment managers. This is why, for financial planners like us at WMM, investing is a long-term game aiming for the gradual building of wealth over 5, 10, 20, 30 years or more.
#1 Don’t tinker
It is tempting for people to think that being a successful investor means being a busy investor. Yet this is usually not true. Rather than logging into your portfolio every day and making regular buys/sells, it is usually better to stick to a strategy and make periodic adjustments to keep the plan on track – rather than to try and “beat the market”.
#2 Start early
The sooner you start investing, the more time you have for compound interest to work its magic. Those investing for retirement, for instance, often see a growth explosion in the final 10 years of their accumulation phase – after a 20/30 year saving period.
One of the most common reasons for drastic investment behaviour (e.g. selling all stock market investments) is investor panic over a bear market – with typically disastrous effects. For many of these people, they simply were not honest with themselves about their attitude to investment risk. As such, ask yourself from time to time: “How would I feel if my portfolio suddenly dropped 20-30% in value, as it did for many people during the pandemic?” If you think it would make you want to make an impulsive decision, it may be time to revisit your strategy before such an event.
#4 Review your tax-efficiency
Governments often love to tax stocks, bonds and other assets. Many of these need to be paid, although it is also true that many investors pay more than is necessary – eroding their returns in the process. Make sure you take time to review your tax strategy at least once per year. Your ISA allowance is a good starting point. In the 2021/22 tax year, you are allowed to commit up to £20,000 into your account(s) and shield any interest, capital gains and dividends from tax. If you are saving for retirement, moreover, then consider using your pension to do so. Basic taxpayers get 20% tax relief on their contributions, and those on the Higher Rate get 40%.
#5 Check your goals
What are you ultimately investing for? Perhaps you are a young person looking to get on the property ladder in the next 10 years, and so want to build up a deposit of £20,000. However, it may be that your goals and priorities have changed as you’ve grown older and realised those initial objectives. It is important to review your goals every few years, therefore, as these can affect your investment strategy and asset allocation. A financial planner can help guide you on this.
Interested in finding out how we can optimise your financial plan? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469