You Don’t Have to Be a Genius to Make Smart Investment Decisions
Financial adviser Bestinvest issues a research twice a year which gives a detailed list of ‘dog’ funds that have slowed down on the performance chart. The most recent report published last week shows the woeful returns of some of the largest investment groups: Invesco Perpetual has been on a downward trend after five of its funds worth £15 billion performed poorly, Aberdeen Standard has its fair share of howlers as well. JP Morgan, Fidelity and Janus Henderson have also been pushed into the doghouse after consistent underperformance.
The bi-annual research by Bestinvest can come in handy for people who want good returns from their investments. The London-based investment company encourages people to monitor the performance of the funds they have put their money in and weed out any weak investments that are giving weak returns.
But majority of the Brits don’t follow this practice in real life. They put their money in a pension fund and forget about it instead of monitoring it constantly and making necessary adjustments. Those who invest in Isa also make the mistake of investing in just one or two funds, instead of following a diversification strategy.
Is Investment boring? It can be, but it’s definitely not difficult to understand. Here are some pointers from investment experts to help simplify things and protect yourself from risky funds.
We all remember the downfall of Enron, the U.S. energy giant that cost its employees their jobs as well as their pensions because most of their money was in invested in Enron stocks. The same is true for a Turkish worker who only invested in Turkish funds, only to make big losses after the recent lira crisis.
It’s important to stay balanced in investment by putting one-third of your savings in bonds while the remaining in equities.
Most people, especially those who don’t know much about the stock market, tend to stick to safe investments like bonds and cash/sterling which can cost you over the long term. Many company pension schemes use extremely conservative ‘default’ funds which heavily lean towards bonds with low interest rates.
To see which scheme your company follows, check on its official website and change your allocation if it’s too conservative for you.
Don’t Try to be Over-smart
Most people think that U.K. shares are relatively cheap in comparison to U.S. equity market, which is true to some extent. All retirement funds are heavily invested in the Wall Street since U.S. makes up 60 per cent of the global index. British workers who are auto-enrolled into pension schemes hold stocks in the top five tech companies on Silicon Valley: Apple, Facebook, Microsoft, Amazon and Alphabet. But what about the U.K. companies? A good pension scheme should hold a mix of U.S. tech stocks as well as local equities to diversify the risk.
If you’re enrolled in an Isa or Spp scheme, you probably face obnoxious charges on maintaining your accounts which defeats the purpose of investing to make profits. You can switch to indexation to avoid the middleman or choose low-cost tracker funds which might not always make you a winner but will never put you in the doghouse.
Investing is like leveraging. You can’t carry a heavy piece of furniture for a long time, but if you use a lever, you can hold on to it for quite a while. The same is true for investing. You use the dollars you have now as leverage to make even more money. This is one of the easiest ways to make wealth, and even Warren Buffet has said it himself that you don’t have to be a genius to become a good investor.
People who understand the power of investments use the money they have today to recruit more money instead of spending it on things with depreciating value. The end goal of investment is to make wealth, which is quite important to enjoy a stress-free retirement, buy your dream home or fund a family vacation. There are so many reasons why you would want to increase your wealth, and defining your financial goals is the first step towards making smart investments.
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