The 5 fundamentals of investment advice
As an IFA in Cheltenham I get asked my opinion on investments all the time. And I’m happy to give it, because I feel very strongly in the robust financial planning process that I recommend. However, the answer is often not what people want to hear, because for me there is a big difference between investing and gambling.
1) You against the market?
Prices of investments, whether they are stocks, funds, Bonds or commodities, are a reflection of the price that the overall market has found acceptable. And the vast majority of this influence is from major players who do this for a living. And these are firms of the brightest people, with the best software and the most information making well informed decisions. For you to beat the market and make money, you need to make better decisions than them. Scary huh?
Even Financial Advisers, myself included, outsource most of this function to experts in the city to pick the winners and losers, because we know how hard it is to do this. This is a huge reason to entrust a financial adviser yourself, let them be your middle man dealing with the city.
2) Invest for the long term
Investments scare people because of their volatility. Which just means they go up and down. However, the market has consistently shown over the long term there will be growth. There are two things to consider here. Firstly, that your financial planners will be aiming to make you good returns over a minimum of 5 to 7 years. Secondly, take your advisers advice and don’t cash in during a down turn, you can ride out the storm!
3) Beware of high fees
Evidence has shown that employing an expensive fund manager is likely to not make you good returns over the long period. This is because their high fees erode any gains they make. Often, we recommend to people funds that track a certain market because they perform well over the long term with very reasonable charges.
4) By the time it’s news…. It’s too late
This is very related to point 1). I remember a story about a famous stock broker who always said, ‘as soon as my taxi driver starts giving me stock tips I know it’s time to sell!’ Because as in point 1), by the time us mere mortals know what’s going on, the experts in the market have already considered and traded on the news.
5) Know what you want
Maybe this should be number one. But the crucial thing is to know what your planning that money for, not necessarily specifically, but definitely in general. It may be that this is for a particular purpose, like for a deposit on a house, for a retirement holiday or for school/university fees. Or it maybe that you’re not sure and it’s a rainy day fund if things go badly but if things go well it’ll be a bonus pot. Your job is to make your future plans, and then it’s your financial advisers job to make sure your money is in exactly the right place to support these dreams.
I love talking to people about their plans and exploring the investment options. Parker Financial Advice are independent (IFAs) based in Cheltenham, who choose products from the whole of the market.