Saving and Investing
What are you saving for and why?
Most of us have some form of savings, which could be cash in your current account, a deposit account, a Cash ISA, your workplace pension(s), all the way up to a carefully constructed investment portfolio which is diversified across a series of asset classes and different ‘tax wrappers’.
However, many people struggle to answer our simple question – what are you saving for and why?
Successful investing is relatively simple, but requires patience, understanding and a calm head in times of trouble.
A few principles behind successful saving & investing
- Rule 1, is that we should always ensure we have an easily accessible cash reserve, for those unexpected events and expenditure.
- The next step is to identify what you need to save or invest for and what your timescales are – anything less than 3-5 years should be cash based, anything longer investments can play a positive role.
- Volatility – a great word, but what does it mean. This is the fact that investment values will inevitably go down as well as up. There is no doubt about that fact. You can reduce the risk and probability of the investment having lost value when you need it, however, by ensuring you leave your money for a long(er) period. Hence the ‘less than 3 year’ rule above.
- It’s all about time and patience. Don’t rush the decision to invest and when you have made that decision stick with it. Reacting to world and market events will lose you money. Staying calm and invested, merely increases the chances of you making money
- Little and often (saving monthly for example) is a good way to get started and build your knowledge and experience.
- It’s a fool who tries to ‘beat the markets’! And anyone who tells you they know where markets are going, is a liar – it’s all guesswork. We are advocates of passive investing, which some see as dull and boring, but it gets the results over time with, arguably, less risk of an investment manager making mistakes.
- Don’t follow the herd, the latest trend or the next big thing – all fraught with danger, in our opinion.
- Spread your risk – have a variety of different investments, or a diversified approach. Again, for us, it’s all about reducing your risk.
- Finally, don’t get spooked when things go down in value, which almost inevitably they will! It is a natural human reaction to respond cautiously when an unexpected loss has occurred. Your reaction could lead to your investment being cashed in at the worst possible time and even more damaging, you end up with a loss of confidence leading to a reluctance to invest in the future.
- It may however come as a surprise that cash in itself is not risk free. Whilst the capital value may be secure, it is easy to overlook the true impact that inflation will have on your savings over time.