Investing is one of the most important things you can do to secure your financial future. It also allows you to build wealth over time while taking advantage of compounding returns.

By understanding some key principles you’ll have the peace of mind knowing that you’re doing everything you can to invest with confidence and make the right investment decisions. But it’s not surprising that the world of investing can seem complex to many, especially in the current global economic climate.

Investors face an endless supply of market news, investment choices and often changing market conditions and all of this can make life very difficult when it comes to investing. However, there are a number of key principles every investor should follow with the aim of building an effective long-term strategy, designed to achieve their financial goals.

Here’s my rundown of the 10 key investment principles that every investor needs to know.

(If you would prefer to listen to a podcast episode based on this article, instead of reading about it, please click here)

1) Set clear investment goals

It’s important that you set yourself clear objectives and goals. This will help you stay focused and on track to achieve your financial objectives. With a well-structured plan in place, you can constantly stay committed to it.

Start by asking yourself some simple questions such as:

  • What are you hoping to achieve?
  • Do you want to retire early?
  • Do you want to acquire a second home?
  • What sort of retirement lifestyle are you hoping for?
  • What does wealth mean to you?

And remember, there are a number of factors to consider when setting your goals such as your age, investment timeframe and risk tolerance.

The importance of setting clear investment goals is covered in more detail here

2) Plan on living a long time and saving more for it.

People aged 65 in UK in 2020 can expect to live on average for a further 19.7 years for males and 22 years for females, and this is projected to rise to 21.9 years for males and 24.1 years for females aged 65 years in 2045.

So we are living longer and your investment objectives should take that into account.

Start to invest early, with discipline and have a plan for the future.

plan for old age

3) Cash is rarely king

In today’s economy, it’s becoming increasingly rare for cash to be king as inflation eats away at its purchasing power.

Cash is a very popular asset class but it’s important to remember that during times of higher inflation the value of cash decreases, making it a less attractive option in the long run.

There may still be times when you able to negotiate a discount by paying with cash. However, when inflation is taken into account, cash typically lags behind other asset classes, such as stocks and bonds, so over time any discount may effectively be negated as your cash would generally be worth less.

4) Start your investment journey early

Investing early has many benefits, for example:

First, you have more time for your investment to grow.

Second, you can take on more investment risk when you are younger and have a longer time horizon to recover from any potential losses.

Third, when the interest you earn on savings is reinvested it begins to earn its own interest enabling you to take advantage of ‘compounding’ to build your wealth over time. Compounding is often called the 8th wonder of the world because even small amounts of money can grow to become a significant sum over time.

The power of compounding is so great that delaying investing even by just a few years, or choosing not to reinvest, can potentially have a massive impact on your future results.

Finally, starting early gives you a chance to learn about investing and develop a good investment strategy before you have a lot of money at stake.

If you can start investing early in life, you are likely to be better off than if you wait until later to start.

5) Returns and risk generally go hand in hand

All investment strategies come with some degree of risk so remember to be realistic about your objectives and what you can achieve based on your own personal circumstances.

Of course you always want to aim for the highest possible return while taking on the least amount of risk, but in reality there is usually a trade off involved. The higher the potential return, the higher the risk involved and vice versa.

Therefore, if you want to target a higher level of return, you have to be willing, and able to tolerate, larger swings in the value of your investments along the way. It can be a bumpy ride at the best of times.

That said, there are ways you can mitigate the risks assocated with your investment strategy. For more information have a listen to the podcast episode called “Rethinking Investment Risk

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6) Market volatility is normal

Volatility is normal when it comes to financial markets and investing, infact it’s to be expected.

It is natural for prices to go up and down, so even when you experience large swings in a short period of time, don’t let it rattle you. Keep your head when all about you are losing theirs and remember it’s widely considered that the best time to invest is often when others are panicking.

So don’t panic when the markets are down. Instead it’s important to stay calm and focus on your investment strategy and long-term goals. By doing so, you give yourself the best chance of success regardless of what the market is doing.

investment volatility

7) Timing the market is difficult

Many people believe that timing the investment market is essential to earning a profit. However, this is not always the case. While it is true that there are periods when the market is more volatile and prices fluctuate more frequently, these periods are often followed by extended periods of stability. As a result, it’s often said that trying to time the market is a fool’s errand.

Staying invested is what matters most.

By staying invested, you ensure that you are participating in the long-term growth of the market. Which helps to mitigate the effects of volatility.

Staying invested also allows you to take advantage of opportunities as they arise. You’ll be in a position to buy when prices are low and sell when prices are high.

For most investors, a good strategy is to focus on finding quality companies that are well-positioned for long-term growth. By investing in these companies, you can minimize your exposure to short-term market fluctuations and maximize your chances of earning a consistent return on your investment.

8) Diversification works!

Don’t put all your eggs in one basket.

Diversification is a risk management technique that investors use to spread their investments across different asset classes, industries, and geographical regions.

The goal of diversification is to reduce the overall risk of an investment portfolio by investing in a mix of assets that have a low correlation with each other. This way, if one asset class suffers a decline in value, the other assets will offset some of the losses.

Diversification can also help to protect against inflation by investing in assets that are not directly impacted by rising prices.

Over time, different investments will tend to even out. So the aim is to grow your money, even if some investments underperform due to market movements.

For further information on the benefits of maintaining a diversified portfolio, please take a look at

eggs all in one basket representing a lack of diversified investment

9) Review your portfolio

Reviewing your investment portfolio on a regular basis is important for a number of reasons.

  • It allows you to track your progress and see how your investments are performing. This information can be used to make adjustments to your portfolio, if necessary, especially if your individual circumstances have changed.
  • It can help you identify any potential problems or red flags that may indicate that you need to make changes.
  • It can help you stay disciplined and avoid making impulsive decisions that could jeopardize your financial security and future results.

By taking the time to review your investment portfolio, you can ensure that you are on track to reach your financial goals.

10) If it seems too good to be true, it usually will be

Promises of high returns with little or no risk are almost always too good to be true. There are lots of scams on there and many people are looking to take advantage of the unsuspecting investors.

Before investing it’s always advisable to consult with a financial professional to help you understand the risks involved.

And, just to wrap up whatever your long-term priorities are, your first investment will always be to understand your priorities and objectives and long term goals.

your first investment quote

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