Article written by InvestNow – 30th June 2022

1. Invest now

The best time to start investing is right away; compound returns pile up over time so the sooner the better. But the investment universe is a vast and complex space that requires knowledge, patience and risk management. Starting small, making regular contributions into diversified funds is a great place to start. Investing is not the same as trading or trying to time the market.

2. Understand the risks

From cash to shares to bonds and beyond, investors face a bewilderment of choice. Learn before leaping. Understand the fundamental behaviour of different assets, why asset allocation and diversification matter, and the relationship between risk and return over time. Research how professional investment managers run diversified portfolios; read disclosure documents; avoid unregulated products.

3. Asset allocation is (almost) everything

Asset allocation – or the proportion of a portfolio devoted to various underlying investment types – drives 90% of returns over the long term. Investors can adjust the mix to match their needs and risk tolerance.

4. Diversification is essential

Investing in a single asset or asset class is usually the recipe for disaster. Portfolios built around multiple asset classes with a wide selection of underlying securities are better able to provide sustainable long-term returns in line with investor preferences. Diversification smoothes portfolio performance over time while helping protect investors against catastrophic losses.

5. Individual risk tolerance matters

In general, high-risk should lead to higher returns over the longer term but not all investors have the stomach for such a volatile ride. Tools including risk profile questionnaires can help investors understand their personal tolerance for volatility and how that translates to likely return outcomes.

6. Have a plan

Investment decisions ultimately reflect a range of factors including risk tolerance, age, goals and time horizon. Careful planning, often with professional financial advice, is necessary to combine all these elements to achieve a successful outcome. Investors need discipline to stick with the plan during volatile periods while remaining flexible to adjust plans as personal circumstances change. Easy-to-select diversified funds are a great way to implement strategies that reflects an individual’s risk profile and investment timeframe.

7. Stay informed, but don’t react to the noise

Markets tend to generate a lot of media heat (especially at extremes) but not much light. While investors should keep on top of market developments and portfolio changes, reacting to over-cooked headlines is a sure way to burn returns. Volatility is an inevitable part of the process, therefore, investors need to stay cool, focus on investment fundamentals and stand by the plan.

8. Investment styles are complementary

Labels such as passive, active and responsible are all valid, somewhat distinct ways of investing. Passive styles focus on low-cost index-tracking; active managers aim to outperform benchmarks after fees; and, responsible strategies attempt to reflect certain non-financial goals (for example, low-carbon portfolios) on top of generating returns. All styles are valid and potentially have a place in an investment portfolio depending on individual risk tolerance, goals and values.

9. Fees and tax are important (but not everything)

While future investment returns are unknowable, costs are upfront and ongoing. Since the details can be complex, investors need to understand the particular impact of fees, taxes and other costs of any fund or trading platform they use.

10. Investing is not a game

Investing can be an entertaining, rewarding and emotionally intense activity, but it is no trivial pursuit. Following the rules by investing in well-regulated, licensed products that offer transparency and robust security measures is the best place to start. Investors should understand their own behavioural biases, too, and how sound portfolio construction can help them avoid making common mistakes. Money is serious; losing it is no fun.