A simple investment plan can serve as a useful guide to building long-term wealth, but it can be tricky knowing where to start.
Here, we take a look at some key considerations that may help you decide where to invest, and develop a long-term strategy, depending on your personal goals.
Bear in mind, though, that whatever your investment plan, there are no guarantees of making gains. The value of your investments can fall and you may get back less than you paid in.
Consider your investment goals
As a starting point, consider what you want to get out of your investments. For example, is your aim to achieve long-term growth, or would you like to receive an income? This will usually depend on the reasons why you’re investing. For example, you might be focused on investing for long-term growth to pay for your children’s education fees, or, alternatively, you may be investing in order to supplement your income in retirement whether it is in Hong Kong or elsewhere.
You may receive interest or dividends paid out from your investments, as a regular income. However, if your goal is growth, you will be hoping for a long-term gain and therefore may decide to reinvest any income generated.
Think about your investment timeline
Considering your goals should help clarify your investment timeline. You may not need the money for several decades, or you may need to achieve your goal within a shorter timeframe, perhaps in five to 10 years.
However long you have until you need the money, you should ideally aim to hold your investments for at least five years to give them the best possible chance of riding out any market downturns, and potentially giving them time to recover from any setbacks.
How much risk are you willing to take?
Any investment involves risk, but you can control to an extent how much risk you take on, with the timeframe you have until you need the money playing an important part in this decision.
Generally, the younger you are, and the longer you have until you need the money, the greater the risk you can take, as your money has time to potentially ride out any market downturns or loss from a particular investment.
Your approach to risk will help clarify your asset allocation, which is how much you hold in different investments, such as shares, bonds, cash, commodities, and property.
You have a huge choice of investments, and make sure you understand the risks before investing. Fixed-income investments, for example, such as government bonds, are typically considered less risky than share investments.
The basics of your investment plan
Creating a basic investment plan involves setting out what you want to achieve from investing, and how much risk you are willing to take on. At this stage, you are focusing on these considerations to act as a starting point from which to consider asset allocation, or how much you will hold in so-called lower risk assets, such as cash, or bonds, compared to those that are considered higher risk, such as shares.
Once you have the basics down, you can start thinking about the actual investments you might want to choose.
Create a diversified portfolio
A golden rule of any investing plan is that you should spread your money across a range of different asset classes. If one or more rises in value, you will make gains, but conversely, if they fall, the hope is that gains from other investments may help offset any losses. This means holding some of your investments in all the main asset classes – cash, fixed interest, property and company shares. In theory, this should help manage the overall volatility of your portfolio.
Investing in funds rather than individual shares is one way that may help to diversify your investments. Funds are made up of a mix of investments – for example, a UK equity fund may hold a wide range of shares of companies from different industry sectors, with a manager who makes the investment decisions on your behalf. Investing in funds also make it easier to simply invest in a variety of assets, such as fixed income, and non-UK investments.
It’s possible to invest in a single fund that invests across a particularly diversified portfolio. For example, St. James’s Place offers ready-made investments as a simple solution to remove the complexity from investing, with a range of funds that can be matched to your risk profile and financial goals. These funds are made up of a mix of investments across different asset classes, with global exposure. Please remember that Phoenix Waters Wealth Management is not recommending ready-made investments as being suitable for you based on your personal circumstances, and would need to undergo a review before we can determine what is suitable for your needs.
If you’re not sure where to invest, seek professional advice or come to us for help.