Following the FCA’s warning that inexperienced young investors are taking big financial risks, wealth manager InvestEngine comments and offers some tips for better investing.
InvestEngine founder Simon Crookall says: “The FCA research highlights the dangers of high-risk investments like cryptocurrencies and foreign exchange, which younger investors may be accessing with investment apps. We applaud the FCA for highlighting these concerns — while it’s great that more young people are turning to investing to build their wealth, it’s clear many individuals don’t understand the risks they’re taking.”
Six tips for better investing from InvestEngine
- Set some goals
Do you have a specific aim in mind, like a deposit for a house or a retirement nest-egg? Or are you just looking to grow your savings as much as possible? Working out your investment goal is a good way to start your investing journey and to provide some discipline to stay the course — especially when stock markets get rocky.
- Don’t be a fashion victim!
Beware of getting swept up by investment novelty and fads — investment crazes come and go, and by the time you’re on board the big gains may have already been made. Ask yourself whether you really believe that latest investment “opportunity” will continue to deliver, or could it be a bubble waiting to burst?
- Know your risk appetite
High-risk investments can crash just as quickly as they rise — could you stomach substantial losses over a very short period of time? Would worrying about big losses keep you from sleeping at night? Invest at a risk level you feel comfortable with.
- Embrace diversity
Spread your bets — putting some of your money into volatile individual stocks and assets may be reasonable, but balance that with more traditional investments. Diversifying your investments helps reduce risk and smooth returns — you’re not over-exposed if a single holding crashes, nor are you depending on just one share or investment coming good.
- Think long-term
The reality is in the short-term stock markets are pretty much as likely to fall as to rise. But with a properly diversified portfolio, the longer you invest for, the more chance you have of gaining overall — and beating cash returns. It’s why investing should be seen as a long game.
- Don’t be a DIY disaster!
Many investors like the challenge and excitement they get from DIY investing, but it isn’t for everyone. Having a professional investment manager build and look after your portfolio can be a good way to control your investing emotions — whether being swept up in the latest investment mania, or panicking and selling in falling markets, crystallising your losses.
InvestEngine founder Simon Crookall adds: “Having an investment goal should help you put together a suitable investment plan for actually getting there. Of course, we don’t all have a specific investment aim, but even if it’s just to grow your savings as much as possible, that objective will help you think about what risks you’re prepared to take. The rise of free trading apps has made it all too easy for individuals to get caught up in the hype of high-risk investing.”