The Principles of Growing your Money

Investors Guide

The Principles of Growing your Money

Investing to beat inflation and build a nest egg for the future.

The Principles of Growing your Money

Investing to beat inflation and build a nest egg for the future

Welcome to the Investors Guide to the Principles of Growing Your Money.

Investing money can be an intimidating and complex matter

Understanding the fundamentals of investing helps you formulate the right investment strategy and make better investment decisions, irrespective of how much money you may or may not have to invest.

Introduction

The overall aims of investing are to produce investment returns which exceed inflation and provide the money to help you fulfil your personal and financial goals. To do this several things have to be considered such as, how much you are willing to invest, your risk profile and the way you structure and maintain your investments. This guide, therefore, will help you understand the fundamental principles which underpin the investment of your money over the medium to long-term.

Start investing early

Investing early to achieve your medium to long-term goals is important. Instead

of waiting until you have saved enough money to invest or until you’ve sufficient money to save on a regular basis, invest what money you have - the earlier you start investing the better. The reason for this is due to something called compounding.

Compounding increases the initial amount of your capital investment by building on investment returns (interest, dividends, and capital gains) generated over time. The longer your money is invested the greater the effect of compounding. Therefore, investing what you can now makes it more likely that you will achieve your medium to long term financial goals.

Invest regularly and often

If you make investing a ‘spending’ priority, i.e., you invest regularly throughout the year, it will help your money grow in real terms and build your wealth significantly.

Firstly, a regular, consistent, and disciplined approach to investing helps you make effective use of the ‘ups and downs’ associated with investing in financial markets.

By making regular fixed payments, topped-up, if possible, with surplus capital, you can boost your investment returns when markets rise, when they fall or when they are flat. Investing in this way makes you less dependent on one market ‘price point’. Regular payments allow you to invest in the

market at different “price point” times allowing you to purchase more investment units when market values fall and fewer investment units when market prices start to rise. This method of investing potentially reduces the average cost of your investment, thereby increasing your investment returns over the medium to longterm.

Secondly, investing on a regular basis helps you to smooth investment returns, thereby reducing the overall volatility of your portfolio the longer you remain invested. It also lessens the impact of big market swings and thereby helps you create a sustainable investment plan with your focus being on achieving your medium to long-term goals rather than concentrating purely on market pricemovement.

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Investing small amounts of money on a regular basis can help you smooth out investment returns over time and reduce the overall volatility of your portfolio.

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Diversification: the ‘Holy Grail’ of any investment strategy When it comes to investing, diversification is crucial in managing portfolio risk and generating consistent returns. By investing your money across different asset classes, sectors, and financial markets, you reduce the impact that any one investment holding can have on your portfolio.

Historically, diversification has proven to be one of the most effective strategies for reducing volatility and

achieving solid investment returns over the medium to longterm. A welldiversified portfolio of (near) cash, shares, bonds, property, and other assets provides a degree of portfolio stability and delivers investment returns which are less affected by the vagaries of market price movement.

Even in times of market turmoil, a diversified portfolio can help you weather the economic storm thereby allowing you to stay committed to your long-term investment plan. Therefore, a diversified portfolio helps you remain focussed on your financial goals rather than on short-term market fluctuations.

Given what has been said so far creating an investment strategy, which includes making regular payments into a well-diversified portfolio, is the best way of achieving your financial goals.

With the help of your financial adviser, you will be able to construct a well thought through diversified portfolio that has been tailored with you in mind taking account of your unique needs and risk tolerance.

‘Time in the market’ matters

most NOT ‘timing the market’

When it comes to investing, being consistent and patient is key; rash decisions delay, disrupt, and possibly stop medium to longterm goals from being achieved. ‘Timing the market’ is one such decision which can have a severe and detrimental impact on investment returns.

The idea of ‘timing the market’, i.e., trying to predict when portfolio/asset prices will go up or down so that you can invest when prices are low and realise your investment when prices are high, is an enticing one. This strategy rarely works successfully for investors. Even if you managed to get out of the market at the right time, you are likely to miss out on significant gains when the market rebounds because of the time it takes to get your money back into the financial marketplace.

Investment data shows us that being ‘out of the market’ when the market rebounds and recovers, has a significant impact on investment returns making it essential that you stay invested and ride out market ups and downs. Consequently, remaining ‘in the market’ and being consistent in the way you invest enables you to benefit both from compounding returns and market

rebounds thus giving your investments more opportunity to grow in real terms.

It also makes sense psychologically to stay invested and stick to your longterm investment plan. Constantly checking the value of your investment especially in times of market downturns can be stressful and lead to irrational decisions being made.

You must remember the value of your investment will go up and down because financial markets fluctuate wildly over shorttime periods. Conversely, over longer time periods your investment is likely to trend upwards giving you the investment returns you are looking for.

Accordingly, the longer your investment spends ‘time in the market’ the more able you are to ride out economic maelstroms and less likely you will be to make emotionally charged decisions which may not pan out.

Discussing and implementing the right investment strategy, committing to it over the medium to long-term and remembering that ‘time in the market’ is more important than ‘timing the market’ enables your investment to give the investment returns needed to achieve your financial goal.

Markets go through up and down cycles but tend to trend upwards (have a higher value) over the long term It is no secret that financial markets are cyclical meaning the value of your investment will follow a cycle or pattern. While it is extremely uncomfortable to watch your investments fall in value, it is important that you keep things in perspective. Even when markets experience significant downturns such as those experienced during times of economic uncertainty or global crises, history shows us that markets have always recovered and continue to trend upwards in value over time.

So, rather than your focus being on shortterm market price movements, it should be on your medium to longterm investment goals aligned to the knowledge that markets will eventually rebound.

Markets are unpredictable –focus on what you can control It is easy to get caught up in the daily fluctuations of the market and allow fear or greed to influence your investment decisions. However, it is vitally important that you keep your emotions in check if you are to achieve long-term investment success. There are several ways this can be done.

Firstly, it is important that you create a welldiversified portfolio that is clearly linked to your financial goals, your risk tolerance and capacity for loss. This helps mitigate risk and reduce the impact of market volatility on your portfolio.

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Staying invested is important during market downturns. While it may be tempting to sell your investments to avoid potential losses, timing the market is a tricky thing to do.

Secondly, staying invested during market downturns is important. While it may seem counter intuitive to hold onto your investments, encashing them to avoid potential losses and to ‘time the market’ is notoriously difficult. By moving out of the market not only have you ‘crystallised your losses’ but you may also miss out on significant investment gains because you failed to buy back into the market when it recovered. By holding on to your existing investments you automatically benefit from any eventual market recovery.

Relationship between risk and return

Investing is a dynamic and fluid process making it important that you understand the relationship between risk and return. While we must acknowledge that no investment is riskfree and that all investments carry a degree of risk, it is true that high investment returns are more likely the more investment risk you take.

If on the other hand you have a low tolerance for risk and market volatility makes you feel uncomfortable it is more likely that you will have to forego some investment returns as a trade-off for more investment (capital) security –again, bearing in mind that there is still no guarantee that your investment will not fall in value.

In short, it is critical that you understand the relationship between risk and return if you are to enjoy investment success. While there are no guarantees, understanding the link between the two will help you choose the right level of risk upon which a welldiversified portfolio can be built.

Frequently checking your portfolio appears to increase its volatility

It’s only natural to want to keep an eye on your investments but obsessively tracking the performance of your investments is likely to lead to unnecessary anxiety and worry. In fact, the more you check the value of your investment the more exposed emotionally you are to the volatile nature of the market. Investment introspection exaggerates the impact volatility is having on your portfolio and makes it appear that your investment portfolio is constantly and excessively fluctuating in value. Subsequently, you are more likely to make sudden changes to your investment holdings which could have a detrimental impact on the overall performance of your investment. Keep this in mind, even though your investments have the potential to grow over the long-term, they may also experience temporary short-term losses - maintaining a disciplined approach to investing will help you navigate markets in good and tough times, reduce your concerns and will lead to better investment returns.

‘Read all about it’ - Headline news

The news headlines which grab our attention tend to be sensational in nature. Headlines on economic, financial, and political upheaval increase market uncertainty and tend to make it spiral downwards. You must try to ignore the short-term noise surrounding these events and maintain your investment strategy which you put in place to weather such financial storms. Rather than fixating on the headlines and thinking about the possible impact, imagined or real, that it will have on your investment portfolio, you

should instead remind yourself of your investment strategy, the steps you have put in place, and the outcomes you want to achieve. Remaining focussed on and committed to your investment strategy means that you are more likely to stay on track and avoid making decisions which jeopardise your plans.

Remember investing is a marathon not a sprint. So, once you have made your investment decision try to forget about the money that you have invested until your next portfolio review. Be patient and have faith in the decisions you have made because over time it will enable your investment to provide you with the investment returns you desire.

The Benefits of collaborating with a financial adviser

As can be seen from what we have discussed so far investing to achieve financial goals is complex. This complexity is compounded by behaviour traits, terminology, and financial information issued by investment companies all of which makes it more difficult to plan effectively for the future.

Fortunately, help is at hand. Shane Fox, a qualified regulated professional financial adviser, will help you understand financial terminology and show you how it can be used to formulate a tailor-made cohesive investment strategy which in turn helps grow your money enabling you to achieve your financial goals. Here are several benefits that Shane, as a professional financial adviser, gives you:

1. Asset Allocation

Getting the right mix of investments is key to growing your money over the medium to long-term. Establishing how much of your money should be invested in equities, bonds, property, and (near) cash, as well as deciding how many individual portfolios you should hold, is difficult to determine without the right tools and expertise. Invest too cautiously and you might not get the returns you need. Invest too adventurously and you will feel

uncomfortable and will cause you to lose sleep as the value of your money fluctuates wildly. Shane, using his expertise and the tools available to him, will identify the right mix of investments for you based on the level of risk you are most comfortable with.

2. Portfolio rebalancing –investment risk management

Ensuring you maintain the right investment mix and that your portfolio stays within your selected risk profile means regular reviews of your portfolio essential. Once a review has taken place it may mean investments have to be sold with the money being used from the sale to rebalance your investment holdings or to restructure your portfolio should this be required.

Rebalancing the portfolio, yourself can be difficult as you may have become attached to certain investments or find it difficult to decide on what investments to sell. Shane will review your portfolio objectively and take responsibility for any decisions made and for the subsequent actions which follow. By implementing the decisions which have been agreed by you on advisement, sees you maintain a consistent approach to investing which will improve investment returns over the medium to long-term.

Investors Guide to the Principles of Growing Your

Money

3. Cost management

Costs associated with the managing of your investments reduces investment returns on the money you have invested. Shane ensures these costs are reasonable, appropriate, and competitive given the type of investment you want and the level of ongoing service you require. This ensures investment returns are maximised over the term of your investment.

4. Investor coaching –

understating financial and investment terminology and what it means in

practice

Investing money, particularly when it’s your money, produces strong emotions which can affect your ability to make rational, logical investment decisions. The impact on investment returns cannot be overstated should a rash decision be acted upon especially when investment losses are being realised –it may take years for those losses to be recovered. Shane will be the voice of reason in times of financial and economic turbulence and will act as a ‘stopgap’, averting the implementation of decisions which may end up being very costly. In times of financial upheaval, he will continue to provide consistent, sound, objective advice ensuring you keep on track and achieve your goals.

5. Tax management

Taxes can reduce investment returns. Selecting the right investment type is paramount if you want to see your money grow. Shane will help you select the right investments to minimize your tax liability both now and, in the future, based on current tax legislation and your own tax position.

6. Capital withdrawals and income decumulation

How and when you make withdrawals from your investments is complex especially if you are relying on those investments to provide a stable, rising, long-term income. With the help of a cash flow modeller tool, Shane can create, and put in place, a capital withdrawal and income decumulation strategy. This will ensure withdrawals and investments are aligned, thereby increasing the amounts which can be taken over time.

7. Estate planning and Inheritance Tax mitigation

One of the most complicated areas of advice relates to the distribution of your wealth in life and of course on death. The competing desires to retain and benefit from your accumulated wealth while at the same time protecting it for others can only be

dealt with by those who understand the legalities around tax and estate planning and how they interact with each other. Shane has access to specialists in these fields and together they will help you create solutions which satisfy your desire to use and protect your wealth.

Summary

The world of investments and wealth management is complex especially when trying to align them to your future goals and aspirations. Shane will bring clarity to your financial position and peace of mind that comes with having a professional financial adviser at hand.

If you would like to discuss any topic raised in this document or need advice relating to your personal wealth, business or income security please contact Principle Financial Services. The initial consultation is cost and commitment free and will be conducted at a time and place convenient to you.

Are you Ready to Grow your Wealth and Secure your Financial Future?

Do not delay any longer and start building your wealth – take the first step towards a brighter financial future. If you would like to review your situation or discuss the options available, please contact us for further information – we look forward to hearing from you.

SHANE FOX

shanefox@principlefinancialservices.co.uk

01530 860190

The Springboard Business Centre, Mantle Lane, Coalville, Leicestershire, LE67 3DW

www.principlefinancialservices.co.uk

info@principlefinancialservices.co.uk

PLEASE NOTE THE FOLLOWING

This guide is for general information and is not intended to address your personal and financial requirements and should not be deemed or treated as constituting financial advice. Nor does this guide constitute tax or legal advice and should not be relied upon as such. Tax treatment of investments and legal advice depends on the individual circumstances of each client and may be subject to change in the future. For further guidance on the matters discussed in this guide please speak to Shane Fox, who is a regulated financial adviser.

Past performance is not a reliable guide to the future and does not guarantee future results. The value of your investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested which would have a detrimental impact on the level of future income you may receive.

Principle Financial Services Ltd is an Appointed Representative of New Leaf Distribution Ltd. who are authorised and regulated by the Financial Conduct Authority. Number 460421.