No-one can predict what life has in store for us next, the events of 2020/21 have been a very clear demonstration of this. So it is important to establish a financial safety net. Ideally, you should have enough saved to cover at least 6 months of your outgoings and be able to access these funds relatively quickly.
Have a clear vision / goal
Think about your goals for the coming year – what do you want to accomplish? Make sure they are clear, concise, detailed and written down.
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An important part of investment planning is selecting assets you are comfortable with. Your portfolio should include a mix of investments to not only help protect against unexpected economic situations and market fluctuations, but to also ensure you are able to meet any short term cash needs without affecting your long term growth plans.
Remember, your choices are not set in stone and it’s a good idea to review your plan from time to time to ensure they are still aligned with your goals.
There are 4 main types of investments (also known as asset classes) to potentially choose from as follows:
Cash Investments – putting money into a bank or building society
Shares – buying a stake in a company
Property – investing in physical buildings (commercial or residential)
Fixed Interest Securities (also called bonds) – lending money to the Government or a Company
How much you decide to invest in each ‘asset class’ will depend on your attitude to risk, your current financial position / time of life and your future goals.
The returns you then get will depend on where you put your money e.g dividends from shares, rent from properties etc.
3) Attitude To Risk
How much of a risk taker are you?
Ultimately, there is no such thing as a ‘no risk’ investment. Even an asset such as a general ‘savings account’ falls into the low risk category, as the interest received may not keep up with inflation, resulting in a loss of value in ‘real terms’ (buying power).
Risk means different things to different people. Your individual circumstances, personality, goals and timescales will all contribute to your ‘risk profile’.
For example, if you buy a property or company shares, the value of the ‘asset’ you invest in can go down instead of up, meaning you may not get back the full amount you invested.
Even if your ‘asset’ increases in value, if this increase is less than the rate of inflation, your purchasing power should you liquidate your asset will have declined.
If you need to quickly convert an asset into cash, sometimes you cannot do so without giving up capital and income due to a lack of buyers. E.g selling a property.
Exchange rates are constently fluctuating, with variable buy and sell rates. It is easy to lose money where transactions involve different currencies.
Interest Rate Risk
Changes to interest rates affct your returns on savings and investments. Interest rate risk is a particular risk for bondholders.
One of the ways to reduce risk over the long term is to save in regular amounts, which can include drip-feeding a lump sum investment by breaking it down into smaller chunks.
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3) Investment Term
How long should you invest for?
Less than 5 years
Easy to access
Low risk / return
Usually cash savings, premium bonds
Minimum 5 years
Mix of investments
Shares, bonds, selected and monitored for performance
10 years +
Potentially higher risk / return
Shares, Bonds, Property, Pension
Your financial situation and future goals will influence the answer to this question, and typically you will have different strategies for your different investments.
Before you buy or sell any investments, it’s worth seeking professional advice. Discussing any concerns with an advisor will help remove your emotions from the decision making process and ensure your financial planning strategy remains on track.
When it comes to building an investment plan, there are many areas to explore. If you would like to book a free 30 minute initial chat, please click the button below, or contact Tony Thomas on 07585 592494 or firstname.lastname@example.org