Whether budgeting for a trip of a lifetime, aiming to clear student debt, helping children get on the property ladder or planning for retirement, we all have financial milestones and objectives, and faced with the high cost of professional advice, an increasing number of people are deciding to take personal control of their finances; you may consider becoming an investor, and technology is the enabler.
There is no doubt that the financial services sector, and in particular the City, have revelled in being impenetrable to the man on the street – with enlightenment and guidance come fat fees – but having scraped away much of its pomp and jargon, it is not difficult to get to grips with the basic principles of investing and investment products; online platforms now serve up market data, planning tools and trading technology that were once the preserve of the professional.
Undoubtedly the first step is the hardest, but the ability to come together with people just like you to pool knowledge and share experience means that it should not take long to get to grips with core concepts and begin to grow in confidence as an investor.
The government’s Retail Distribution Review changed the lives of financial advisers forever, and those either denied access to advice or unwilling to pay for it started to realise that much of an IFA’s work was formulaic and simple to replicate – set your financial objectives, understand your attitude to risk and then construct a diverse portfolio of investments that are in line with your risk tolerance whilst delivering the desired end result.
it is not difficult to get to grips with the basic principles of investing and investment products
Memories of lessons about supply and demand and risk and return may come flooding back, and this is where they exist in the real world – who wouldn’t want massive returns with no risk, but unfortunately that’s not the way things work; most investors can find a compromise solution and those not yet confident enough to plough in may take some initial advice and then occasional financial health checks down the line.
The simple fact is you are unique, and no one cares more about your personal goals and financial future than you do; to an adviser, you may be a ‘6’ or a ‘moderate to high risk tolerance’ but you know that one day you are going to have that little cottage in Cornwall and you’re certainly not intending to be working past 60.
A recurring sentiment on bulletin boards is the sense of empowerment and liberation that comes with taking control of your finances and the platforms available now ensure that you have the ability to track your investments 24/7/365; no need to fret if a product or market moves against you, the limit orders on your investments will ensure that you automatically sell out at a price you set.
In the States the FIRE movement has been established by those to save and invest their way to being Financially Independent, Retired Early; the movement is gaining traction in Blighty as financial self-reliance will necessarily replace state support.
If you’re not ready to invest in individual companies a whole range of pooled investment – funds – are available where you can either pay for your investments to be actively managed by a professional fund manager, or you can choose low cost trackers that return, for example, the performance of the FTSE 100.
If you’re looking for a ready made solution, many brokers will have ‘model portfolios’ that deliver an instantly diversified investment portfolio.
The new generation of digital investment managers – sometimes robo advisors – will deliver a similar service having asked you to describe your emotional response to potential losses, and set your financial objectives.
Other products will reward you if the stockmarket goes up, but will also guarantee you your money back if the index were to fall; yet more will allow you to effectively put down a deposit on an investment much larger than your original outlay and achieve magnified gains (or losses).
set your financial objectives, understand your attitude to risk and then construct a diverse portfolio of investments
Muckle and its sister site, DIY Investor, deliver information for existing investors and seeks to engage and educate those new to savings and investment; it delivers product information from those that should understand them better than anyone – the issuers – and it delivers case studies and experiences from those that have used them in pursuit of their goals.
There are two key factors in the success of an investment strategy – invest over as long a period as possible and keep costs as low as you can; online broking platforms bring considerable levels of sophistication with low and transparent pricing making investing simple and cost-effective.
Once you announce your intention to become an investor, you will doubtless meet a large number of ‘experts’ that had hitherto hidden their light under a bushel – the chap in the pub speaking in hushed tones about this little software company he has found out about that is just about to revolutionise data storage.
invest over as long a period as possible and keep costs as low as you can
While you may wish them well in their investment, an investment strategy should be founded on solid research and proven strategies.
Possibly not to be taken too literally, there are a number of oft-quoted rules of thumb that may at least stir your grey matter into considering things financial.
Many take your age as a starting point because that tends to point to your proximity to the key financial objective of retirement and the amount of risk you are able to tolerate given that you may not have time to rectify any decisions that go badly wrong:
Debt – pay off any expensive debt such as credit cards before you begin to invest.
Security – aim to have a readily accessible rainy day fund equivalent to six months household expenses.
Investments – your age represents the percentage of bonds, and cash (no to low risk investments) you should have in your portfolio.
Savings – divide your age by two and save this percentage of your salary each year.
In retirement – reckon on being able to use 4% of your pension pot per year as income.
Investments – your age subtracted from 100 is the percentage of stocks and shares based investments (higher risk) you should have in your portfolio.
Retirement planning – in order to maintain your quality of life when retired aim to accumulate a retirement pot equivalent to eight times your salary in your final year at work.
Clearly these are rules of thumb and no more, but they can point to some very broad guidelines that can be applied and remember, nobody cares more about your money than you do.
Online platforms have revolutionised the opportunities open to the investor, delivering access to masses of information and historical data and the ability to buy, sell and monitor investments at a click of a button at low cost.