7th November 2018

Principles of smart investing

Principles of smart investing

The contents of this article is informational and education purposes only and does not constitute financial, accounting, or legal advice. If you are unsure of any investment decision please seek a professional financial advisor. Please note: Capital at risk. The value of your investment can go down as well as up and historic performance is not a guide to future performance. Please read Risk Statement before investing. 

PRINCIPLES OF SMART INVESTINGWe each have unique criteria to meet our needs today and our financial goals for the future. Successful and smart investing involves making choices based on your personal circumstances. Whatever your end goal, you will want a plan to help your money grow. Here are key investing principles to follow to invest smartly. 

1. Understand yourself as an investorIt’s important to understand and be aware of your personal circumstances and how they impact your behaviour when investing. Each investor will have varying investing goals and different time frames to achievethem in. As well as this, appetite for risk differs from person to person. Greater risk is often linked with the opportunity for greater rewards over the long term, but finding a balance between the risk and reward that you’re comfortable with - and that’s appropriate for your investment time frame - is the most important first step to successful investing. Remember that all investments put your capital at risk. 

The most important points to consider: 

 Risk tolerance
 Investment knowledge
 Investment objectives
 Gross annual income
 Approximate net worth
 Investment time horizons

2. The ‘Snowball’ EffectCompound interest is the notion that you earn returns on the money you invest and on those returns over time (i.e. you earn interest on your interest). Warren Buffet described it as ‘the most powerful tool in the creation of wealth through investment’. Often overlooked by investors who spend their investment returns and in doing so miss out on the ‘snowball effect’ and decrease the potential portfolio return over time. 

3. Invest RegularlyIt’s impossible to pick the perfect moment to invest and beat the market. One way to minimise volatility and improve your chances of maximising returns is to invest small amounts into investments on a regular basis, rather than investing the full lump sum in one go. This helps to smooth out the peaks and troughs of the market and leaves you less vulnerable to the outcome of any single investment. It’s also much easier to come up with a smaller amount to invest on a monthly or weekly basis than to make a large, lump-sum contribution. The Crowdfunding model, and the Crowd with Us platform, is a great way to do just this. 

4. Build a diversified portfolioSpreading your assets across a wide range of investments is an effective way to reduce risk and increase potential returns over the long term. Holding different types of investments will help cushion your portfolio from downturns, as the value of some investments may go up while the value of others may go down; they’re unlikely to all behave in the same way at the same time. How you spread your money will be led by your attitude to risk. Cautious investors should reduce their exposure to equity-based investments and opt for a higher proportion of secured debt investments. 

5. Monitor your PortfolioExamine your investment portfolio on a regular basis, and re-examine your objectives and goals to ensure that it continues to meet your needs. Life events, market conditions and changing goals are all cues to review and re-balance your portfolio. 

6. Determine your Investment HorizonYour choice of investments should reflect your time horizons, whether you’re saving for long-term or short-term goals. Longer-term, growth-oriented investments are more suited to fulfil long term goals, where as your short-term goals (usually less than 3 years) call for more conservative investments; investments which are more accessible where you want quick and easy access to your funds.