While savings accounts provide easy access and security of guaranteed capital, the return can be pretty small. Sensible investing may be your solution to capture returns offered by the markets. Although the ever-changing world of investing can be intimidating, sensible investing can provide more robust long-term returns.
So what is sensible investing?
Sensible investing focuses on passive and evidence-based investing, achieved by a predetermined strategy centered around:
- Keeping costs low by avoiding unnecessary trading
- Diversification across the whole market and a broad set of asset classes
- Taking the long-term view
Before You Invest
Take your time. Investing is something that you don’t want to rush into. Instead, take your time and develop a plan. As humans, we are bound to make mistakes. It’s just part of our nature. However, it is essential to learn from these mistakes to avoid making them over and over. Don’t let fear or greed influence your money decisions; that is how most people get into trouble with their finances in the first place.
Do your research. The first and one of the most critical steps to sensible investing is doing research. If you’re interested in investing but don’t know where to begin, you must start by educating yourself about different investment options. This way, you’ll know what types of investments are available and what would work best for your situation.
Save money first. Investing without saving is like nailing jello to a wall. You need something solid before you can build something larger and more valuable. If you don’t have savings, it may make more sense to focus on increasing your income, reducing your costs, or both, so that you have something left over each month after paying the bills and contributing toward retirement accounts.
Invest in wealth management. If you want to invest but are afraid of making mistakes, don’t worry! You can always have wealth management professionals such as Hayes & Associates assist you in choosing your investments and managing your portfolio.
Consider These Tools
- Financial planning. Develop a plan to meet your financial goals with ease.
- Portfolio risk management. Get an analysis of risk in your portfolio and actions you could take to manage it better.
- Tax-advantaged accounts. The money you put into a particular kind of account grows tax-free for a certain amount of time. So tax advantages can help build up your savings faster, especially if you’re doing it early enough in life that compound interest will work in your favor!
- Look at other ways of investing. There are stocks, bonds, mutual funds, ETFs, and even more options. Each type has its risks and rewards, but they all have different tax treatments and liquidity that can affect the return on your investment.
- Don’t put all your eggs in one basket. Diversify your investing across different types of investments, asset classes, and investment vehicles so that your portfolio will remain balanced if one part of your portfolio does poorly.
- Find a balance between risk and reward. Risk is typically thought of as something negative (and it can be). Still, it’s essential to understand that risk is simply another way of saying “variability” or “uncertainty”—not knowing all the possible outcomes for your investment.
Potential for long-term returns
Cash is undoubtedly safer than shares, but it is unlikely to find opportunities to grow in the long run. Rewards over longer-term investments have been found to come with a level of capital risk. That means you may risk losing some or all of your initial investment. The rewards are not always guaranteed. However, volatility can sometimes offer the opportunity to invest at a lower cost and receive better returns in the long run.
Your savings must earn a rate of return that is greater than the rate of inflation to grow. In today’s world, it can be hard to find a savings account that can offer this. So it’s worth considering investments that have the potential to outgrow inflation.
Providing regular income
If you are retired or approaching retirement, you may be searching for a way to receive a regular income to cover daily expenses. There is a range of investment options (equities, bonds, property, etc.) that can provide you with a regular income that is typically higher than the rate of inflation.
You or a wealth management professional can design your investment portfolio to help you reach your financial goals as you go through different stages of your life. With careful planning, you can personalize your portfolio to reflect your ever-changing needs, goals, and priorities. The team at Hayes & Associates will get to know you personally and professionally to recommend solutions centered on your objectives and goals.