Take stock of rules for investment

Last month I wrote about the stock market. For many of us, there comes a time when we need to decide whether to get involved or not. (The fact is, if you have a work pension, you are probably already investing without even realising it!)

Investing in the market is a long term pursuit. However, it shouldn’t be time-consuming. We’re not talking Wolf of Wall Street here.

At AAB Wealth we have three simple rules when it comes to investing:

1. Diversify
2. Keep your costs low
3. Remain disciplined

If you can stick to these (which can be harder than it appears) then we believe that markets will work for you, over the long run.

Diversification

This is the investment-speak way of saying “don’t put all your eggs in one basket”. At AAB Wealth we give our clients exposure to thousands of different companies and sectors; that way they benefit from the good performance of some without being overly weighed-down by poor performance of others.

Low costs

Investing in the stock market involves layers of costs. You may pay a broker to buy and sell shares on your behalf. You may pay stamp duty on shares you buy. You may pay an annual fee to a fund manager to pick and choose investments for you. You may pay tax on any profits made. You will certainly pay an online platform to administer your account for you. All these costs add up, especially where you buy and sell on a regular basis. This can have a substantial impact on the actual profit you stand to make. Don’t do it; pick something and stick with it!

Discipline

This is probably the hardest rule of all to stick to. In theory, we know that markets go up and down. But what about when you invest your hard-earned money and then the bottom falls out? Not quite so easy to sit on your hands then. Perhaps the most common and costly mistake is to buy into something at a high point and then sell it at a low point. This is easier to do than you’d realise. Google “behavioural finance” and you’ll see quite how well-founded the theory is!

Overall it’s important to have a long-term mind-set. When you invest money, try to lock it away in your mind and earmark it for some future event: for example, your retirement. This is a hard concept to imagine for us in our 20s and 30s! But thinking about your investments and checking on them every day will make it 100 times harder to stick to rules 1, 2, and 3. The more often you check them, the more often you’re likely to see a negative number, and the more often you will be tempted to fiddle.

For more information, contact a member of the AAB Wealth team advice@aabwealth.uk