Take the stress out of investment
With the right knowledge and tools, you can create a fertile soil in which your investments can flourish
The internet is a mine of advice, tips and guides to investment. The huge amount of information available online can be overwhelming and because much of it is untargeted, it makes it even harder to decide where and how to invest.
But investment doesn't have to be stressful: with the right knowledge and tools, you can create a fertile soil in which your investments can flourish.
Consider investment goals
Think about what you want to achieve with your portfolio and your attitude to risk before selecting the assets to go inside your portfolio, in order to achieve an acceptable trade off of performance against volatility of the returns. This is where asset allocation is crucial. It means constructing your portfolio in a way that will provide you with a well-diversified portfolio to help buffer against the ups and downs that come with investing over the short term. There should be little need to deviate from it regularly. Instead, it allows you to invest with a long-term horizon.
A simple way to construct an investment portfolio is to use the core/satellite investment approach. In essence, you invest in a 'core' stable, steady set of investments and then ‘satellites’ of racier, riskier investments. The split between these depends on your investment goals and timeframe as well as the level of risk you’re willing to take. A core/satellite strategy is all about diversity, lower volatility and not keeping all your eggs in one basket.
For stress-free investing, create a well-diversified portfolio, focused on market returns and low costs. Watch for any fees that might apply to your investment as these will eat into potential returns.
Don't be tempted to buy and sell too often
Stress-free investing means heeding the buy-and-hold investment principle. You may be tempted to act like a trader by shooting in and out of investments at the drop of a hat, but doing so will incur higher fees. It will also mean you have to constantly monitor investment news and the performance of your funds or individual stocks.
Most people build a portfolio to generate returns over the long term. The temptation is great to get swept up in the gyrations of the markets and the stocks in which you are invested, but timing entries and exits is hard and it is much better to do your research and invest in those companies or funds that are capable of generating returns over the long term.
That doesn't mean that portfolios shouldn't be given a regular service though. Consider monitoring the holdings regularly, and rebalance parts of your portfolio every six months if needs be.
A core of large generalist funds
Back to the 'core' part of the asset allocation strategy. As an example the 'core' could be large generalist funds or investment trusts which invest in some of the biggest stocks across the world.
Investing in a global pooled investment means your money is spread across countries and regions – sometimes even different asset classes (equities, fixed income, property, private equity etc.) – rather than being focused on just one geographical area.
If one part of the world's economy or stock market turns sour, there will be plenty of other regions that will be performing well. Their performance is typically more steady and reliable, which means you won’t lose sleep over a poorly performing asset.
Buying through a 'fund shop'
The easiest and most convenient way to buy any kind of investment is through a fund supermarket such as Alliance Trust Savings. These so-called fund shops are the most cost-effective way of buying, selling and monitoring investments together on one platform.
They also make it easy to wrap investments in tax-efficient wrappers, like Isas and Sipps, to ensure your money is working as hard as possible. Plus, your portfolio is accessible 24 hours a day, seven days a week, meaning it's even easier to buy and sell investments at a convenient time.
Although it's only an option for self-directed investors who feel comfortable making their own decisions, many fund supermarkets will offer comprehensive tools and guides to help you decide on the right investment path.
Past performance is not a guide to future performance. Please note that the value of investments and any income from them can go down as well as up. Your client’s capital is at risk and they may not get back what they originally invested.
Alliance Trust does not give advice. This article takes no account of personal situation and is not a recommendation. You need to ensure you understand the risks and commitments before investing. If you are unsure you should consult a Financial Adviser before investing.
Illustration by Sue Macartney-Snape