The tenets of investment
In this article Tim Maakestad, Partner and Director of Kreston Reeves Financial Planning sets out his tenets for investment…
Life is about risk and reward. Some people are happy to lead a quiet life, avoiding if they can the physical or emotional extremes that present themselves from time to time. Whereas, some others crave these extremes both good and bad as they make life worth living.
In some respects, investing money has a similar audience. There are those who choose to shun high-risk areas such as equities preferring to keep their monies in “safe” homes like cash deposits for fear that they may lose some or all of these monies through poor investment. Others look for returns that “shoot for the stars” as they want the rewards that this type of investment can bring. Neither option is wholly right or wrong and only with hindsight can we judge what we should actually have done.
But there is a middle ground to the above that can give us the best of both. It is with this in mind that I confirm my tenets for investment:
- Be diversified – “not keeping all your eggs in one basket” as the saying goes. It is ok to have cash and it is ok to have risk based investments. The combination of these gives shorter term capital for emergencies and known future expenditure, and the potential for above average growth in the medium to longer term. Also, invest in areas that have a broad spread of holdings to avoid individual failings affecting your wealth substantially – we are all aware of the failings with Marconi and more recently Carillion.
- Invest for the long term – Investments that involve a degree of risk-like equities need sufficient time to grow. Moving in and out of a particular asset class, short term, can affect the overall growth substantially and you should work on the basis that risk-based investments should be held for at least 5 years to reap the benefits.
- Make use of your tax-free allowances – Individual Savings Accounts (ISAs) and pension contributions, for example, offer the investor a real advantage when it comes to performance when compared to those that suffer tax whilst growing. You would have to take a great deal of risk to match the returns that a fairly modest risk-based pension provides when taking in to account the tax relief that is given.
- Review the charges for investment – The cost for advice is something that we all have to consider and some investments will be cheaper than others. But cheaper is not always better and the right mix between cost and performance will see your monies grow.
- Attitude to risk and capacity for loss – The level of risk that you should take will depend on a number of factors including your age, your time scales, the particular goals that you want to achieve and your attitude to risk. The more risk you take, the more potential there is for gain. The other side of the same coin is your capacity for loss and whilst you may be prepared to take this risk, can you afford to lose the monies? A suitably proportioned portfolio of investments will give you the right mix with regular reviews that will ensure that your investment portfolio stays in line with your requirements.
- Take professional advice – we all know of the so-called “advice” that comes from the bar room on a Friday night. You need professional advice from a suitably qualified adviser with a proven track record. Someone who can demonstrate that they have your best interests at heart and will work with you to deliver the results you require.
If you would like to discuss how Kreston Reeves Financial Planning can be of assistance to you in meeting your investment goals, please contact Tim Maakestad here or on +44 (0)330 124 1399.
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