I want to start investing but have no idea how to start. Please can you give me some basic investment advice?
It’s no secret that the key to growing your wealth is to invest your money wisely – and as early as possible. However, making the decision of where to invest your money may seem like a daunting task for many first-time investors.
This overwhelming task is often made even more confusing given the variety of options available, and this can potentially lead to the wrong investment decision being made.
There are common mistakes made by first-time investors, and often these can be attributed to simply overlooking the basics at the start of their investment journey.
Have a financial plan
The most common mistake first-time investors make is not having a financial plan in place. Any investment should be an element of a greater financial plan because without a plan, the possibility of reaching your ultimate goal is reduced.
For example, the lack of a financial plan could result in the selection of an investment that is inappropriate, or one that does not aim to satisfy an individual’s financial objectives.
Commit to your plan
Not committing to an investment plan is also a downfall for first-time investors. Financial investment solutions are based on an assumed term and if this period is compromised, it could affect the performance of the investment.
Many investors also cash in their long-term investments for short-term purchases, resulting in it being very difficult, if not highly unlikely, to catch up those years of savings.
Understand your investments
Another common mistake is not endeavouring to fully understand the investment solution. It is important for an investor to feel comfortable and confident in their investment and to do so, investors should understand the investment’s risks, volatility and sensitivity to the market.
Failing to select the appropriate underlying portfolio will also affect the performance of an investment, as well as its ability to achieve its given objective, whatever that may be.
Too many investors are looking for a ‘quick buck’ and are not prepared to invest in their own future. If an individual is on a compulsory scheme, such as a pension or provident fund, he (or she) often elect the lowest savings option because that will allow him (or her) the greatest net income each month.
Many investors that are on a compulsory scheme also accept the default asset allocation, which is in most cases highly conservative, resulting in a lower return.
As a rule of thumb, first time investors that are young should be invested in a more aggressive option, as they have time on their side.
Match your investment to your goals
Once an investor is aware of the possible downfalls, it is then important to choose an investment that is best suited to an investor’s financial goal.
When deciding on an investment, it is important to understanding what kind of lifestyle you want to live, as this will determine what return you would need to achieve this lifestyle, the asset allocation required in order to achieve this return, and the resultant risk that accompanies such asset allocation.
When selecting an investment, there are three main questions an investor should always ask:
- How does this align with my greater financial plan?
- How did I arrive at this investment proposal?
- How will this investment achieve my personal financial goals?