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Should we be investing now?

September 2012

September 27th 2012,
by Nick Plumb - (Plumb Financial Services)

Many people are asking me whether it is a good idea to move money out of cash and into longer-term investments.  The UK stock market has certainly recovered a lot of the ground previously lost to the ‘recession’ years of 2008 and 2009. However, there is still a fair degree of uncertainty about Europe and other world economies.  So, would now be a good time to put some spare cash into longer-term investments?

In reality, the best time to have invested would have been four years ago at the depth of the recession when the markets were on the floor.  However, there was little investor confidence at the time, and it is understandable why so many people waited to see what the stock markets would do.  The general opinion of most analysts is that the FTSE will eventually climb back up to above 6500 points again, or even higher, which would certainly benefit anyone investing now.

My ten basic investment rules are designed to help guide you in the right direction when making non-cash investments.

Rule One
Don’t expect miracles. You may hear tales of investors who have turned £1,000 into £10,000 in a couple of years by picking the right stocks and shares but the odds against such a phenomenal return are about as long as winning the jackpot on the National Lottery.

Rule Two
Don’t be tempted to take more risk than you are comfortable with. Promises of high potential rewards will generally mean a greater potential risk of financial loss too. Unless you specifically want a high risk investment, a good financial adviser is likely to suggest an investment with a broad spread of assets that should outperform a bank or building society savings account over the longer term, but which will not expose you to more volatility than you are happy with.

Rule Three
Don’t look for a ‘quick buck’. All non-cash investments should be viewed as a medium to long-term commitment (to be held for at least five years or longer). There are no ‘get rich quick’ investments and a steady sensible ‘tortoise’ usually beats a volatile and risky ‘hare’ in the investment world.

Rule Four
Don’t pin all your hopes on investments alone. If you have a young family, you should have life insurance in place and some form of cover for ill health, so that your family would be well provided for financially if you died or suffered a serious illness. You should also have made some pension provision to ensure that your retirement years will be comfortable before making other long term investments.

Rule Five
Know exactly what you want your money to do for you. You can invest to produce additional income or if you don’t need extra income right now, your objective will probably be for capital growth. Having clear investment goals and objectives will clarify the most appropriate investment strategy for you.

Rule Six
Make sure you use the most tax efficient investments first. You should generally always fully fund ISAs in each tax year before considering investments in Unit Trusts, Investment Trusts or Life Investment Bonds.  Your tax position and that of your spouse will also affect what kind of investment is recommended by your adviser. 

Rule Seven
Avoid putting all your eggs in the same basket. Look at investments that offer a wide choice of investment funds from different fund managers. Spreading your money across a diverse range of assets and funds will reduce the risk and volatility of your portfolio.  For example, investing in ten moderately adventurous funds with a wide spread of asset classes can actually be a lower risk strategy than investing all your money in a single medium risk fund where your money is all held in one asset class. 

Rule Eight
Never deal with anyone who ‘cold calls’ you.  Professional Financial Advisers just don’t do that. Cold calling is the usual tactic of the boiler room scammers and fraudsters.  Be particularly wary of people who contact you from overseas offering “sure-fire riches”. They are outside the control of the Financial Services and Markets Act (which regulates advisers in the UK) and all of your money could be at risk with no chance of getting it back.

Rule Nine
Never lock money away in a long-term plan if you may need it tomorrow.  Keep plenty of cash available in instant access accounts for emergencies and short-term needs.

Rule Ten
Review everything on a regular basis with your Adviser, to make sure your investments are performing as well as they should be.

Remember, whatever your investment objectives, there is no substitute for good old fashioned face-to-face advice from a qualified Financial Adviser.

Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services. Answers to any questions within articles within the Library section are provided only as a general guide and do not constitute personal financial advice. Any individuals who require advice should contact us to arrange a complimentary initial consultation to discuss their own position.

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