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How to succeed as an Investor

Before providing my view on the above, it is helpful to frame why we invest money in the first place.

From personal experience clients often tell me they are looking to invest due to the desire to “make my money work hard”.

What this often boils down to is the need to retain the purchasing power of money given that most things we buy are likely to increase in cost every year, this has been highlighted by the low savings rates and loss of purchasing power due to the effects of inflation over recent years.

Sometimes people may invest for excitement but I have found this to be rare.

So, if we accept that most people invest money because they want to maintain an acceptable standard of living both now and in retirement – How do we succeed?

Beating the market? Finding the next Google? Investing in the next hot trend? etc. etc. The list can seem endless and confusing.

My belief is that the best way to invest is very simple:

  1. Determine the asset allocation (growth/defensive assets)
  2. Diversify broadly (eggs in baskets)
  3. Keep fund management fees low (costs really do matter)
  4. Rebalance regularly (sell what has gone up and buy what has gone down)
  5. Use tax allowances (ISAs, Pensions etc.)

This sounds fine in practice but in this age of information overload we seem to think that we must always be doing something and reacting to events, news stories etc.

I read that an investment portfolio is like a bar of soap, the more you pick it up the smaller it gets.

If you build a solid portfolio from the outset then it is unlikely you will have to “pick it up” very often and even when you do the maintenance will be light.

To succeed you need:

  1. A sound portfolio designed for your goals.
  2. Discipline and patience to stay the course and not get carried away by euphoria in the good times and panic in the bad times.

Following these simple steps will, I believe lead to a successful investing experience.

It is surprisingly simple, it is just not easy.