29th February 2016
Adrian Lowcock, head of investing, AXA Self Investor, gives some top tips on how to invest for the first time…
Know why you are investing
Before you start investing you need to set a clear goal of what you want to achieve. Deciding what you want will help you decide what risk you are willing to take and where you should be investing.
Whatever your goal it is important to remember that investing is not for the short term.
What is your appetite for risk?
Your attitude to risk is quite personal and it will change. Age, lifestyle and surroundings all contribute to it. The amount of risk you could be taking also depends on why you are investing and for how long. A simple measure is you shouldn’t be having sleepless nights over concerns of an investment falling in value.
Do your research
It is important to do your homework. Take some time reading up about the different types of asset classes, the benefits of ISAs and different types of investment styles. Consider what you want from your investments and how each asset class, fund style etc fits in with your objectives. Give yourself time to digest the information before proceeding.
Create a benchmark portfolio
A benchmark portfolio is the proportion you hold in each asset class when you first start to invest. You don’t need to fill every section right away, but having a starting portfolio provides a great framework to make your investment decisions. It can also be used as a reference point so you can check how far your portfolio has moved from your original investments.
Few investors actually do this, but it is a good way to manage your investments, maintain your attitude to risk and identify areas to take a profit or that need extra investment.
Picking the right investments
Different investments have different characteristics and risks; for example individual shares and bonds offer significant potential but can be volatile and require a lot of knowledge, time and indeed experience. Unit Trusts and OEICs offer a broader investment and an investment manager with significant experience. In addition you don’t pay a premium when buying them (unlike Investment Trusts where you could pay a premium or buy at a discount – one for more experienced investors).
Choosing the right fund
There are far too many for a beginner to know where to start. Fortunately there are tools and services which can help reduce the list. Review fund shortlists, these are compiled by experts to help investors narrow down the choice.
Finding the right investment service
As a self-investor there are a number of choices in this market. There are several important factors to consider, costs, service and jargon are top of my list. Costs for example have a direct impact on the performance of your investments. Watch out for hidden fees’ such as exit charges.
Don’t pay unnecessary tax, use your ISA
Taxes are another cost to the portfolio taken out of any profits you make. Investments held in an ISA will not incur any capital gains tax on capital growth, nor is there further tax to pay on any income earned.
You get a new ISA allowance each tax year. In the current tax year (2015/2016) you can invest up to £15,240 within an ISA. The allowance will remain the same next tax year which starts on 6 April 2016.