Seven sure steps to investment success
Most of us know that there are no sure-fire get-rich-quick schemes that can make us overnight millionaires.
In recent years, a mega moneymaker could have sold oil at €120 a barrel, bought it back at €48 (in sufficient quantity) and lived like a king - but how many people actually did that?
In reality, making money is a more mundane process: investing regularly and sufficiently over a long time in high-quality, well-diversified assets. I cannot promise to make you a millionaire, but here are seven basic rules which should help make you better off over 10 years or so.
1Know your risk limits. If you cannot sleep at the thought of losing between 10pc and 20pc in the stock market, as happened at times in 2014, don't invest in shares. They can plummet.
2 Diversify. Don't have all your money in a handful of stocks, one property market, one asset class or one country. Buy diversified equity funds, rather than individual shares, and so on. Many unfortunate Irish investors were too heavily weighted in Irish banks, with disastrous results. Are you overly exposed to Irish property or deposits today?
3 How much do you need to save to provide for a decent financial future or retirement?
Standard Life research shows that most people, unfortunately, are unaware of how much they need to save. Saving €100 a month may feel virtuous, but is it enough to pay for children's future school and university fees? It's almost certainly nowhere near enough for a decent retirement nest egg. You need a fund of approximately €350,000 to give you an annual income of €18,000 (half the average industrial wage) at 65.
4Be honest with yourself. Investment is a relatively complicated area, and tax-efficient investment via pensions adds another layer of complexity. Most clever people don't fully understand it either.
Ask for help. Good professional advice costs about €150 to €250 an hour, but could easily save you thousands to tens of thousands, depending on your circumstances.
5 Don't try and time the stock market. Stick with it and regularly drip-feed your money into stocks. This will eliminate worries about selling at market lows and buying at market highs.
Many people have tried unsuccessfully to time the stock market; for example, when plunging markets in 2008-2009 encouraged some frightened investors to switch their money into the relatively 'safe' haven of deposits. Many Irish and international investors who did so have missed out on the great stock market rally of recent years.
6Don't invest in a fund just because its charges are the cheapest. Choose fund managers and savings and investment providers which have scale, a proven investment process and consistent performance over 10 years or more.
7 Active funds can outperform passive funds. The issue is not choosing one or the other, but a sensible combination of both, depending on the market's risks and opportunities.
This year, active is better for say Europe and the emerging world, but perhaps not next year.
Andrew Milligan is head of global investment strategy with Standard Life Investments.
Sunday Indo Business