Our eight principles for good investing

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

Empowering, exciting, daunting - kicking off your investment journey can draw out all sorts of feelings. There’s a happy medium in there somewhere and the best investors take their time to set their course before they’ve even placed their first trade. Here are eight tips to send you on your way with a healthy attitude to investing over the long-term:

You don’t want the money in your investment account being held back by money pressures elsewhere in your life. That’s why it’s a good idea to get rid of any unsecured debt hanging over you before you start putting your money to work in the markets.

Unsecured debt: loans with no asset for a lender to recover if you don’t keep up with repayments, which means they often apply higher interest rates.

If you’ve got credit card bills or high interest loans, think about paying them off before you start investing. The point here is to have that wonderful effect of compound interest working for you, not against you, as it could well do if your debt starts to rack up.

Read more:

How to start investing

Inflation and investing to beat it

Six things to do before you invest

Another pre-flight check is to make sure you have a cash buffer in place to take care of any unexpected expenses. You don’t want to be dipping into your investment account if the boiler blows or the car breaks down so having some easily accessible savings is key. Some guides point to having three to six months’ salary set aside but make that amount work for you. The overall aim is to have enough set aside to deal with the unexpected, but not enough on the side lines to expose yourself to the eroding effect of inflation.

It’s normal to want to dive into the stock market but, unless you have a broad sense of what you want to get out of it all, you’ll be swimming in stock tickers, valuations and news headlines.

To give yourself direction and help whittle down the assets that might suit you, start with your financial goals, your tolerance for risk and how much you have to invest. Stockpicking gets more meaningful to your own situation when it reflects a blend of all three elements - it also helps you see where you might have to make some compromises.

Read more:

How to handle volatility

How is my cash protected?

What assets can I invest in?

For example, if you’ve given yourself five years to build up a £50,000 house deposit, targeting a 5% annual return, and £500 monthly investments, the maths show us you’ll likely fall short by over £16,000. To make the sums work, you could consider upping your time horizon to just over seven years, targeting an asset blend incorporating more investment risk to target a potentially higher return, raising your monthly investments or looking for a cheaper house.

Adding real-world circumstances into the mix not only helps you plan better, and more realistically, but makes your asset blend a reflection of your goals as opposed to a generic, open-ended investment journey.

In the old days, when information was hard to come by, research travelled at a snail’s pace and accessibility was pretty much zilch, paying the pros to do the job for you likely made sense. Fast forward, though, and all the information we need is at our fingertips. Whether it’s levelling up your knowledge on investing basics, keeping up to date with the markets or finding the assets to suit you, the research and resources are out there.

It’s why it’s worth seeking out free investment guidance and taking control of your own future in the first instance, and supplementing that with professional advice if you need to. You’ll pay for these services but if you end up with the likes of a complex tax situation or confusing inheritance conundrum, it might be worth it.

Dentist appointments, car MOTs, networking events - we can all start to resent tasks we know are good for us but also require effort. Investing could fall into this bucket if we aren’t careful and we don’t want to see it in there, especially as all we’re doing is trying to give ourselves a better future. Take the monotony out of it all by scheduling regular investments and check-ins throughout the year to make sure your asset mix still suits the goals you’re trying to achieve.

Read more:

How to pick ‘forever’ stocks

Lump sum or regular investing?

Do I need to get every stick pick right?

Investments naturally perform differently from one another - that’s why we diversify, after all - but if one really starts to dominate while others struggle, it can change the overall feel of your portfolio. For example, if you’ve set up a 60/40 blend (60% shares, 40% bonds) you might find that, over time, if your shares have grown at a greater rate than your bonds, you end up with something closer to 70/30. It’s why it can make sense to have a look every six months or so and make sure the overall weights are still in line with how you’ve planned. That’s not a sign to snipe at every profit and add to every laggard though - we’re talking high-level allocations here.

Having your overall asset mix sorted in a way that fits your goals is a great way to plan for the long term. If you do have some dry powder and want to put it to work because you think you see an opportunity in the market, that’s no bad thing. Just make sure it doesn’t derail those longer-term goals and doesn’t mess up the broader risk level you’ve taken time to piece together with different assets. Price dislocations do sometimes happen and there’s no law against trying to capitalise on market volatility - provided you have the stomach for it and are within your own risk guardrails. Options trading is one way some investors try to tackle shorter-term opportunities and hedge against market movements. Importantly, options trading comes with additional risk.

A fee to trade here, a platform fee there, a fund manager’s charge to boot and an advisor’s rate on top of it all - the cost to invest can really add up over time if you aren’t careful. While it might seem that the antidote is to instantly flock to the cheapest fund, platform or advisor, the more measured takeaway is to make sure you are getting good value for whatever you pay. Yes, there are basic provisions that you shouldn’t be shelling out for, like placing trades, but when it comes to things like paying for fund management the picture is a bit more nuanced. Racing to the cheapest passive option might work for you but that’s not to say that a thematic or country-specific approach managed by a human has no place in your portfolio. We don’t need to be dogmatic and only support one team - just make sure that, whatever you pay, you get value from.

Picture the scene: you hold one stock, which is simmering along nicely until an earnings disappointment. The share price drops, taking your entire account with it. Now replay the same scene but this time your money is split between two stocks in different sectors. That drop is still annoying but only half as much. Replay it all again with a portfolio full of stocks from different sectors and geographies, and even some assets like bonds and real estate which aren’t classically completely correlated with equity market returns. Now that stock drop’s effect carries much less of an impact.

This is the aim of diversification, with the assets in your portfolio constantly exchanging leadership and helping to dampen swings due to news from one particular sector or world event. It’s not just about holding as many assets as possible though - pay particular attention to ‘clumping’ wherein the same stocks keep popping up across the funds in your portfolio, actually increasing your exposure to them instead of diversifying your risk.

One of the real advantages of investing is that it prompts us to keep up with the world around us. The markets give us a lens to interpret what’s happening across sectors and geographies and, crucially, what it all means for your money.

The world stage is one thing but don’t forget that there are real companies behind the stock tickers on your screen. It pays to stay aware of how they’re growing, how the bosses are putting profits to work to produce even higher profits and where the potential snags are.

One thing is for sure - neither the companies on the ground, the markets watching them nor the global economies they operate in are keen on standing still. This doesn’t mean you need to nervously flit between assets, rather the knowledge you develop should better equip you to understand market movements instead of reacting rashly to them.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.

Options are complex products, involve significant risk and are not suitable for all investors. You could lose more than your initial invested capital. You should only invest in financial products that match your knowledge and experience. Please review Characteristics and Risks of Standardized Options prior to engaging in options trading.