Whether you have £5,000 or £500,000 to invest, there are a few simple investment rules to follow to improve your chances of a good return. Firstly, it is important to keep it simple. I was reading last week about someone who invested their life savings in an unregulated, complex, high risk scheme, which eventually collapsed. The investor lost most of their life savings and admitted that they never really understood what the investment was.
So, stick with regulated investments and make every attempt to understand what it is before you invest. It is the duty of financial advisers to explain the risks involved in investing so ask as many questions as you need to. Secondly, keep an eye on the costs. Cheap is not necessarily good, but it makes sense that if two investments are broadly the same and one is half the cost of the other, then invest in the cheaper investment.
Many investment and pension portfolios that we have analysed, are packed full of high cost investments reducing the overall returns for the investor. Thirdly, continually review your investments or pay someone to review them. When things happen, both politically and economically, they happen very quickly. Despite this, many advisers or investors do not review their investments from one year to the next.
If you meet with your investment adviser once a year, that is fine, but if that is the only time when your investments are being reviewed then it is nowhere near enough.
Investments really should be looked at on a daily basis. Fourthly, always bank your gains. This is known as rebalancing or rebasing.
When part of a portfolio rises in value, take the profits and reinvest them across the rest of the portfolio. This process of selling high and buying low can help to reduce risk and at the same time increase returns. Finally, if an investment falls in value never do nothing! Either get rid of it, if it is a bad investment, or buy more of it while it is cheaper. If you follow these simple investment rules, you should see an improvement in your average returns.