In a previous article, I wrote about the importance of financial literacy – the idea that we can all invest in our understanding our finances. Pick up the average piece of investment literature however and you’ll be bombarded with complicated language, complicated graphics and a probably a general feeling that you can’t quite follow what’s going on.
If you walk into a bookstore and go to the finance section, you’ll be presented with complicated tomes on everything from portfolio construction to asset allocation to find ‘alpha’ to achieving ‘absolute returns’. It’s not exactly the most accessible language, and consequently, millions of us hand our financial futures over to the ‘experts’ that can understand it.
In my opinion, investing does not need to be a complicated endeavour. A pension is nothing more than a pot of savings; an ISA is just an account that isn’t taxed. If you pay money in fees, you can’t collect them as profits. It’s really not all that complicated. There are a few secret ingredients, but they’ll probably surprise you with their simplicity.
Keeping it simple;
1. Investing is all about the long-term. When you make an investment, be patient and be prepared to hold it for ten years – maybe even longer.
- Values rise and values fall. Sometimes by scary amounts. If you focus on the individual values in your portfolio on a day-to-day basis, not only will you give yourself a huge amount of stress, you’ll also likely make decisions based on emotion, rather than logic.
Keeping costs to a minimum is as valuable to your long-term finances as generating a return. If you generate 10% a year but pay 8% in fees, you’ve only got 2% left over…and might as well have stuck your money in a bond and saved yourself the trouble.
4. Don’t be afraid to do nothing. Sometimes, there aren’t any good opportunities in the market, so don’t be in a hurry to go piling in and buy at the wrong price. As with the story of the Hare and the Tortoise…slow and steady wins the race.