To invest successfully you need three things: time, knowledge and experience. Many people encounter problems that could have avoided had they spoken to a good independent financial advisor (IFA). Try to seek their council as soon as possible and listen to them over the course of your business relationship.
Now not everyone may need, afford or even want an advisor. It does help to understand that IFAs don’t just pick products. They are not associated with any service providers and their job is to help you with long-term financial strategies. They can help you make important decisions. Decisions that are right for your circumstances and they can help you navigate the investment landscape to avoid the pitfalls often associated with investing on your own. Of course having an advisor is not a necessity, but they can be a huge boon to you and your financial goals. To help you on your way here is a list of common pitfalls:
Don’t invest without a plan
Always consider your needs and your goals. Are you saving for you children’s education? Do you need to save for retirement? By asking why and what you start to get you plan moving. An advisor can use their experience and expertise to come up with a long-term plan suited to achieving your goals.
You’ve chosen the wrong product to invest in
There are an awe-inspiring number of options when it comes to investment products. Your objectives may limit your options to certain products. Some products have tax benefits, while others have certain restrictions you should be aware of. If, for example, you wish to save for retirement then consider a retirement annuity fund, which allows you to save in a tax efficient manner. You can, however, only access that money after retirement. So always do thorough research when choosing products. An IFA can help narrow down the right options for your circumstances.
Think about inflation
The value of your money can erode with time. That means getting less for the same amount. This is inflation. Try and maintain the value of your money for the length of investment. Thus your returns should compensate for the time your money was invested.
Cashing in your retirement savings when changing jobs
Try to preserve the savings you have built up in your retirement fund. If you don’t, then it is likely that you will not be able to retire comfortably. If, for example, you cash in your fund when you resign at age 35, you will have 40% less to retire on. An alternate way of stating this is, say you receive 70% of your final salary (escalating for inflation) when you retire then your pension would run out 12 years sooner had you not taken that savings in cash when you resigned.
Only focusing on one asset class and one market
Diversification is one of the most important keys to successful investing. Try adding a few offshore investments to you local investments. This can really help your savings to grow and lowers your risk. Knowledge of the different asset classes is quite valuable. So it really helps to do your research. IFA can be a huge help by ensuring adequate diversification of your investments.
Don’t act on your emotions
Investors can be quite bad at choosing the right times to buy and sell investments. They switch between investment options too often. This destroys the value of their savings. Here an advisor can help minimize doubt during volatile times, giving you a rational groundwork with which to make decisions and to discourage switching investments for the wrong reasons.
Advisors can help you make sense of the countless, complex products available. This will equip you to find the investment that best fits your needs. They bring a little discipline to the process by identifying the emotions that could lead investors astray.
Investing on your own is not impossible, but the right independent advisor has the experience and objectivity to meet all the challenges you may face.