Last week we discussed WHY you should invest. Assuming you are convinced of the long-term benefits of doing so, and that you have all the essentials in place (such as adequate Human insurance), then you may be wondering how to get started?
Objectives
Before you start thinking about investing, ask yourself; “What is my objective here? Why do I want to start investing? What return do I need in order to achieve my goals?”.
If you are a disciple of alchemy, then maybe investing is not for you, proper investing is not a ‘get rich quick’ scheme. But if your goal is to build medium – long term capital for things such as school fees or retirement (whatever that means), then you might be heading down the right track.
Patience is a virtue
The next thing to understand is that you will need to be patient. Sadly, this is a quality we are often lacking in today’s fast-paced world, but it is an important trait when it comes to investing.
In the context of investing, you will have to appreciate that wealth building takes time, but given time, you might be surprised what can be achieved, check out my blog on harnessing the effects of compounding to find out why.
You wouldn’t plant a seed, come back the next day and ask; ‘Where’s my tree?!!’, so don’t expect to hit the jackpot overnight.
Understand risk and reward
Sounds cliché, BUT – the more risk you are prepared to take, generally, the better the return will be over time. Be sure to consider the following:
- Time – How long are you investing for? Generally, the longer the time horizon, the more risk you may be willing to take.
- Attitude to risk – How much risk are you prepared to take to achieve your aims? How would you feel if next year your pot had reduced by 20%? Would you freak out or would you be philosophical, with a long-term view? Would you be able to hold your nerve?
- Capacity for loss – How much could you afford to lose? If your money did lose value over time, how would that impact on your financial future?
There is no magical investment that will give you phenomenal returns whilst taking no risk.
Get your kicks elsewhere
Nobel prize winning economist Paul Samuelson once said that investing should be like watching paint dry or the grass grow. He went on to quip that if you want excitement, take £1000 and head to Vegas!
Nuff said…
Alrighty then – that’s enough for this week; but I will be going into further detail about this topic over the coming weeks, so stay tuned and have a great week!
In the meantime, you can get me on planning@claritylfp.co.uk if you have any questions about investing or any other financial matter, or if there is anything you would like me to cover in a future blog.
Until next time…
(The value of investments and the income they produce can fall as well as rise, you may get back less than you invested).
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