Question – Investing truths?

Question. Duncan, I’m not a client of Wealthflow but can you give some generic guidance on how to invest smartly?

Answer. Some people believe investing has to be complicated. In fact, becoming a successful investor may be a lot simpler than you think. It comes down to knowing your goals, knowing your options, and then picking the right investing partner.

The truth about risk

You can try to minimise investment risk, but you can’t avoid it. That’s why understanding how each investment class – equities, bonds, commercial property and cash – works together can help you determine how much risk to take in relation to potential return. Research shows it’s not the funds you pick that will drive your chances for long-term investment success, it’s getting your asset mix right.

The truth about costs

You can’t control what happens on the stock market, but you can control how much you pay to invest. Every fund has a price tag – from the Annual Management Charge (AMC) to the Total Expense Ratio (TER). These costs are paid directly out of a fund’s returns – before you earn a penny.

The truth about emotion

Having a plan and the willingness to stick to it can serve you better in the long run than reacting to market noise, your emotions, or trying to time the market. The prudent way to invest? Set up a long-term strategy with an appropriate mix of equities, bonds, commercial property and cash investments suited to your time frame, objectives, and risk tolerance.

The truth about time

Time is your ally. By reinvesting your investment earnings instead of cashing out, you give those returns the chance to grow. Your initial gains can produce gains of their own, and so on – a principle called compounding. The results can be dramatic over long periods, helping your savings to build up much faster than you’d expect.

Hope this helps.