Investing Basics: Making it personal
By finding this site you have made a commitment to investigate taking control of your personal finances; you join an ever growing number of DIY investors keen to avoid paying fees for financial advice, wanting information and education about the options that are available as well as practical help from product providers and real life experiences from people just like you by Christian Leeming.
Online brokers and investment platforms report that they have been opening record numbers of accounts since the coronavirus lock down as people take personal control of their personal finances like never before.
DIY Investor is for those that believe that financial self-reliance will necessarily replace state support; those that would rather trust their own mettle than hope the state is there to deliver later life care or support in their dotage.
There is no doubt that for many, the gulf between being a saver and becoming an investor can be wide; however galling it is to receive returns on your savings that are so paltry that they lag inflation, deposit accounts rarely have to warn that you may get back less than you save.
However, much of the fear can be taken away with even a rudimentary level of financial education; DIY Investor is here to debunk the myths that surround investing and ensure that armed with a few basic principles you are better equipped to make informed investment decisions.
From the outset it is worth bearing in mind the old adage – ‘if you don’t know where you’re going, any road will take you there’; spend some time working out what you are investing for, and what you want to achieve.
It may be that cruise to end all cruises, it may be to secure the lifestyle you want in retirement, but this is the time to set very personal objectives that can make make a material difference to your quality of life.
For those starting early, the FIRE movement that started in the US is gathering momentum over here; often working their way out of student debt, an increasing number of young adults are setting themselves the objective to be Financially Independent, Retired Early.
It is undoubtedly better to start investing early and invest for a long time, however, you can only start from where you are. Doing something for a short period of time is rarely worse than doing nothing ever, although those with a longer time horizon are better placed to ride out fluctuations in the markets.
Once you have decided where you want to get to, it is time to sketch out a road-map; one of the fundamentals that most people will be familiar with is the concept of the risk/reward curve.
The principle that the more risk you take, the greater your potential gain or your potential for loss sits at the heart of your investment strategy – how to strike a balance between lying awake fretting in the wee small hours and finding investments that can deliver the return you are looking for.
As well as basic information to help you on the journey to financial independence, DIY Investor brings together people just like you; similar circumstances, similar objectives – real people investing their own money.
Crowds generally make good decisions and by bringing people together it is possible for them to make informed investment decisions and achieve improved outcomes; join the debate @diyinvestornet
So, before getting to grips with the plethora of products that are available, the DIY investor should spend a little ‘me’ time – why are you are investing in the first place, what are your objectives and what time horizons do you have?
Work out what type of investor you are and what your stated appetite to risk feels like in reality – we would all like stellar returns with no risk, but if your investments keep you up at night you have gone out of your comfort zone.
DIY Investor delivers information to experienced investors and it also delivers education to those new to savings and investment; if there is anything that you would like more information about or would like to ask the group, do use our community section or join us on Twitter.
As well as content in which providers share the ambitions for their products, DIY Investor showcases real life people, investing real money to try to achieve their objectives in a way that debunks the jargon that has traditionally typified the financial services sector.
If you have any thoughts or would like to share your experiences, we would be delighted to hear from you at any time – particularly if you would like to feature in our Q&A section – email@example.com
Studies show a linear progression as those new to investing become increasingly confident in their abilities and may change their aspirations and approach to investing over time; DIY Investor targets those that have long term financial objectives rather than short term speculators and traders.
DIY Investor is designed to be of use to those at different stages of their journey towards financial independence; there are no rights or wrongs but we do consider how different groups may respond in any given circumstance and we will bring practical examples of investors in action.
DIY Investor is for you if you are:
New to Investing
You may have little knowledge of, or previous interest in, the financial world but seek better returns on your cash than you can achieve from a deposit account in a low interest environment.
You may not want to put your capital at risk but you know that over time stock market returns eclipse those of cash products.
You could be considered cautious but are prepared to accept some investment risk in return for potential growth.
Rather than investing directly in equities you may be more comfortable with investment funds, and there are many types described on this site; investment decisions are made for you and you can choose whether to receive income or target long term growth.
‘you could be considered cautious but are prepared to accept some investment risk in return for potential growth’
You may decide to open a Stocks and Shares ISA to see if by choosing a basket of funds you can beat the returns you are getting from your Cash ISA more; if you are thinking of investing in individual shares, you may consider companies that you have a personal knowledge of, or have had a positive experience with.
A range of ‘model portfolios’ are available from brokers and platforms that allow investors to choose an investment portfolio that matches their objectives.
Those new to investing could be just starting out with tuition fees or property purchase as their key objectives, or could be of pensionable age looking to take advantage of new pension freedoms and generate their own income in retirement.
Growing in Confidence
You may have an interest in investing and have an investment portfolio, but be keen to learn more about the alternative products that are available and the benefits they may bring.
You understand investing and are somewhere in the middle looking for a balance between risk and reward with the potential for higher returns in the longer term.
‘you are somewhere in the middle looking for a balance between risk and reward’
When considering individual shares, you may choose companies that you have thoroughly researched or consider ‘defensive’ stocks such as energy or food companies whose products are always in demand and can still deliver good dividends when markets fall.
You understand the importance of reinvesting dividends and the role of compounding in delivering improved long-term performance, and also the corrosive effect of what at first glance may appear to be relatively modest fees. Consequently, you may consider accumulating variants of low cost passive investments such as exchange traded funds which are described in some depth elsewhere on this site.
You may decide that you would rather trust your ability to build your own retirement fund and consider investing a Self Invested Personal Pension as an option.
You’re comfortable making investment decisions and are in control of your finances; you have established your own way of assessing investment opportunities and have your own investment style.
‘you may be prepared to accept a high level of risk in the hope of high returns in the longer term’
You are very conscious of the effect of fees and charges on your portfolio and are possibly happier using low cost passive investments than paying for active fund management; you are comfortable investing in individual stocks and shares.
Your portfolio may deliver income from funds or individual equities but you may decide to use a portion of your capital to chase exceptional returns from small cap stocks, overseas investments or other investments such as FX.
You have considerable experience in investing and may be prepared to accept a high level of risk in the hope of high returns in the longer term.
Clearly there are very many external forces that can influence the performance of your investment portfolio, but the most important thing is to ensure that you understand the dynamic of the various moving parts and how they may can impact you.
By making it personal, you are working toward goals that matter to you and with a suitable level of financial education, able to remain in control.
Your objectives and investing style will almost certainly evolve over time; if you embark upon a more gamy investment strategy when you are younger, it means that you will have the opportunity to recoup your losses should the next big thing fail to live up to its billing.
As you approach your end goal, some will opt for the safety of fixed income or cash; with less time to catch up, and often with a healthy pot to protect, this is often the point at which even the most ardent DIY Investor seeks professional guidance.
Whether you are confident enough and can commit the time to making individual investment decisions, or whether you would prefer to trust the professionals, there will be an option that gives you the support and access you require, at a price you consider acceptable.
As we say – Do it Yourself, Do it With me, Do it For me – just don’t do nothing!