Part 1 of this article two weeks ago looked at why we need to invest in order for our retirement savings to keep up with the rising cost of living. It also explained the risks of trying to time the market, and how missing a market cycle’s best days could negatively impact returns. This week I move to other aspects to consider for successful investing.
Waiting to invest
We often come across people who intend to invest for the long-term but are holding onto available capital. They’re waiting for external events to unfold first to feel more positive that they won’t suffer losses.
Waiting for the perfect time to invest is effectively trying to time the market. You may not be rewarded for your due diligence and end up with lower overall returns. If you are cautious, consider the ‘pound cost averaging’ approach where you spread the timing of your investments.
Spreading risk
To earn returns that keep pace with inflation we have to accept some risk, but can take steps to reduce it.
Your investment strategy must be suitable for your situation, time horizon, risk appetite and goals. Then you need layers of diversification – a managed, diversified portfolio covering a range of asset classes, regions and sectors will likely generate better returns with less volatility. Choosing an adviser who uses a dynamic ‘multi-manager’ approach can help increase diversification.
Your investment plan and maintenance
If you don’t have a strategic investment plan in place, start by looking at your situation and objectives. What stage of life are you at? What assets do you own? How much risk are you comfortable with? What are you trying to achieve? What are your future plans?
This will influence your asset allocation. Work with an adviser who can objectively assess your attitude to risk to create your suitable, long-term investment plan. Your adviser should then review your portfolio annually to keep it on track.
Holding your portfolio within an arrangement that is tax efficient in Spain will help protect your capital from unnecessary taxation as well as inflation. Seek advice from an advisory firm which provides holistic strategic financial planning solutions, to integrate your investment management with your tax and estate planning.
These views are put forward for consideration purposes only as the suitability of any investment is dependent on the investment objectives, time horizon, and attitude to risk of the investor. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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