Whether planning for your retirement, a life-change, or simply looking to strengthen your finances, an investment portfolio can be a fantastic asset to supplement your other incomes. With the right choices, investing can have a life-changing financial impact, but getting started can seem daunting. When putting your money on the line, it is important to know what options are available to you, how to assess risk, and the best ways to get started.
At ML Financial Associates, our financial advisors are experienced in helping our clients navigate and benefit from the world of investment. We’ve broken down some of the important information you need to get started:
Start Investing:
What types of investments are there?
When you’re looking at investing, there are three types of investment to consider. These include stocks, bonds and indexes.
Stocks represent ownership in a company. When you buy a stock, you purchase a small portion of that company and may benefit from its growth and profits over time. Looking for stocks that sell for a low cost can build up your confidence in the process due to the high risk involved in investing in them.
Bonds are a fantastic way to become a fixed-income investor. ‘Fixed income’ refers to assets that pay to a set level of income to investors every month, instead of their value varying with the market. Bonds are a common and reliable form of fixed income product, ideal if you need to be able to rely on a steady additional cashflow from your investments. Bonds are a far more stable form of investment than stocks, with far lower risks. Government bonds are low in risk, but this can also mean a lower pay-out.
Index investments involve buying a pre-made portfolio of assets designed to track the performance of a specific market index, such as the FTSE 100 or the S&P 500. These can be accessed through index funds or exchange-traded funds (ETFs). At ML, our investment planners can guide you through the index funds that are available and find areas of investment that appeal to you.
Consider Tax-Advantaged Accounts:
As well as these traditional forms of investment, there are other ways to build upon your finances. Tax-efficient investment vehicles like Individual Savings Accounts (ISAs) allow you to build upon your financial contributions whilst enjoying tax benefits however, there are caps on how much you can save in an ISA each year.
Building Your Portfolio
Getting started with your portfolio is as easy as buying your first stock or bond. You can do this straight from the source, such as purchasing “gilts” (government bonds) from the UK Debt Management office. However, the most common and straight-forward way to purchase and manage your investments is through an investment professional like ourselves.
When you’re deciding what to invest in, we suggest following these tips:
Set Clear Goals:
- Define your investment objectives. Are you saving for retirement, a house, education, or simply growing your wealth? Clear goals will guide your investment strategy and risk tolerance.
Understand Risk Tolerance:
- Assess how much risk you are willing to take. Your risk tolerance depends on factors like your age, financial situation, and investment goals. Younger investors may take on more risk, while those nearing retirement might prefer safer investments.
Have a Budget:
- Whilst usually a rule for personal budgeting, ‘50/30/20’ can provide a helpful guideline in limiting your investment risks – especially when you are getting started. Following this rule, you can maintain a balance in your finances, making sure that all of your needs are met, and that you only take investment risks with funds you can hypothetically afford to lose.In essence, the ‘50/30/20’ rule means:
- 50% of your monthly finances should be spent on your Needs. This includes housing, utilities, groceries, transportation, insurance, and other necessary living costs. Make sure that your investments do not dip into this portion of your funds, and you cannot end up in a situation that puts you at financial risk.
- 30% of your finances can be spent on your Wants. In terms of budgeting, this includes shopping, dining out, entertainment, hobbies, and travel. When considering investments, you could also dip into this portion of your funds to experiment with higher-risk, higher-reward investment opportunities.
- 20% of your finances should be kept aside for Savings and Debt Repayment. This is the portion from which you should conduct the core of your investing activities, as long as it does not cut into your regular saving and attending to any debts.
By following these guidelines, you can make sure that all of your essential spending and saving has been attended to before you allocate any of your funds to investment risk.
Diversify Your Investments:
- Don’t put all your money into one type of investment. Diversify across different asset classes and sectors to spread risk. Consider using index funds or ETFs to gain broad market exposure. An ETF is an exchange-traded fund, which is a collection of investments that can be bought and sold like stock.
Start Small and Be Consistent:
- You don’t need a large sum to start investing. Begin with what you can afford and invest regularly. Investing a regular fixed amount can reduce the impact of market volatility on your day-to-day finances.
Stay Informed and Review Regularly:
- Keep up with market developments and review your investment portfolio regularly to ensure it aligns with your goals. Rebalance your portfolio if necessary to maintain your desired asset allocation
Use Financial Advisors:
- A professional investment planner and advisor understands the market and can help you safely manage your portfolio. Get an expert opinion on risk, timeframes and what would work best for you through expert support.
Be Patient and Stay Disciplined:
- Investing is a long-term process. Avoid the temptation to react to short-term market fluctuations: stick to your plan and stay focused on your long-term goals.
How ML can help
At ML Financial Associates, our team of investment experts are here to help you get started on your investment journey. With their years of experience and market knowledge, they’ll give you best advice, helping you to navigate the complexities of investing and keep you up to speed on changing tax positions.
Our team will take time assessing and discussing your goals and tolerance to investment risk to ensure that you are completely comfortable with the investment decisions they are making, whilst our review process helps to ensure there are no surprises along the way.
You can contact our investment team at our Northampton office on 01604 726684, or our Norfolk office on 01953 711123.
