How to invest
The key to investing successfully is to have a plan that basically involves the regular and continuous buying of assets automatically.
Remember the phrase, Think | Save | Invest | Repeat
Seems simple enough, and it is. There is some work to do upfront, but once this is done, and your goals and plan have been set, you should be able to leave your investment plan running automatically, without having to think about it too much for years on end if you wish.
We will discuss the plan and goals later, along with a note on risk and reward, investment platforms and all the main asset classes. But for now, we will just provide a summary overview, of the key things you need to consider when thinking about how to invest.
How to invest - Amount of money
Any amount of money to begin investing is better than none, although the more you can spare, the quicker your route to financial freedom will be.
Use your budget planner to establish how much you can comfortably afford. This money is being used for the long term, so there is no point in overstretching yourself, if you have to draw it out again, and remember you can’t withdraw any payments made into a pension. Most investment platforms will accept regular payments from as low as £25 per month.
How to invest - Frequency of investment
It is often said that drip-feeding money over a period of time, gets better results in the long term due to “pound cost averaging”, than simply depositing a lump sum every year.
Pound cost averaging is explained in more detail later chapter, but in summary, it means your money buys fewer assets when the prices are high, and more assets when the price is lower, giving you a more balanced overall average price, therefore reducing risk. Making regular monthly payments by standing order or direct debit is, therefore a recommended approach.
How to invest - Attitude to risk
Your attitude to risk is a personal consideration that you need to establish before you consider your investment plan, and asset-buying strategy. There are several different categories you could fit into, but in simple terms, they are divided into low, medium and high-risk attitudes. There are plenty of risk attitude assessments you can take online for free, to establish where you sit.
How to invest - Assets to buy
You will need to decide what assets your monthly contributions will be invested in. The main asset classes will be discussed in detail later on, but in general terms, a good strategy to optimise your portfolio to begin with, is to invest in pretty much everything. We will discuss asset allocation and diversification later on.
How to invest - Time frame
Your investment time frame should not be any less than five years as a minimum, with some commentators now suggesting ten years as a minimum period, being more appropriate for the modern investment horizon. As an investor who is seeking financial freedom, you know your time frame will be more than ten years and are happy to wait for as long as it takes, because the ultimate goal of financial independence, is well worth the wait!