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How to Become a Smart Investor

March 09, 2011 at 10:35 PM

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At Wow, we know many people have lost faith in investment markets and think it's all just a bit too risky. That is because they tend to follow the herd and do not act like a Smart Investor. Here are Wow’s Top 6 Tips to become a Smart Investor:

 

1. Smart investors know why they are investing

They know specifically what they are investing for and when they will require the funds – they have a proper plan. Only when you have a robust financial plan can you decide with any certainty how you should be investing. For example, if you have a 25 year time period for retirement investing, your investment selection will look very different to funds you need in 5 years time – or at least it nearly always does for smart investors.

 

2. Smart investors spread their investments around

They understand that not all markets go up and down at the same time and spread their investments around accordingly. This means when some markets do not perform well, then their losses can often be offset to some extent by other investments that perform in a different way. Having a diverse investment portfolio, no matter how big or small, can help to reduce risks and increase performance.


3. Smart investors seek to minimise costs

They try to keep as much of the returns generated for themselves – and look to minimise fees and taxes as these can dramatically affect the overall return of an investment portfolio. Understanding and controlling costs and tax can be a significant contributor to your investing success!


4. Smart investors keep emotions in check

They understand that emotional demons can be a major cause of unsuccessful investing. People who follow the herd and buy in at the top of the market and sell at the bottom, when they are distressed and worried that things are not going their way, always lose out. Smart Investors understand the market and do not let their emotions affect their investments in rising or falling markets.


5. Smart investors plan for and understand inflation

 Inflation eats away at your investments – no matter where you are invested.  Assuming an average inflation rate of 4%, £100 today will be worth £54 in 15 years time. Many investors therefore suffer from money illusion. They think just because their savings in the bank do not go down (or go up a little bit with interest), that they are making money – unfortunately that is nearly always not the case. The fact is, by leaving money “under the mattress” – or even in a deposit account in the bank, it is almost always declining in real value – even if the numbers do not go down! Smart Investors understand this and also do something about it.

 

6. Smart investors understand the power of time

This may seem fairly obvious but should not be under-estimated. For example you may need £150,000 (in real terms) in 20 years time. Making some assumptions, you would need to save about £400 per month to get there. If you waited 10 years, giving yourself only 10 years to achieve your goal, you would need to save £1,000 per month, based on the same assumptions. By starting early, smart investors understand that they have a much, much higher chance of being successful.

At Wow, we try to help people become smarter investors by helping them create the right investment strategies for their individual circumstances. For a complimentary Investment Review meeting, please call 0845 201 1582. Whether you have an existing investment portfolio, or you want to start creating one, we would love to hear from you.

 

If you would like a free copy of Wow’s Top Twenty Smart Investing Tips, please e-mail info@thewowcompany.com

 

Please be aware....
When investing, the value of your investment and the income from it can fall as well as rise and is not guaranteed - you may not get back the full amount invested. The past is not necessarily a guide to future performance and any tax rules may change in the future. You probably knew this stuff anyway, but just in case....



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