DIY Investor Magazine
/
March 2016
26
WHY INDEX INVESTING IS
GOOD FOR YOUR ISA.
Investing is like any other long term activity – it needs
a clear destination or purpose (to make sure you can
monitor your progress), you need to understand the
risks that might be faced along the way (and what you
might need to do to reduce or in response to those
risks) and it needs some determination to stay the
distance.
START WITH THE END IN MIND.
In these tough economic times trying to save or invest
for the future is becoming increasing difficult for many.
But the importance of providing for your old or infirm
age is arguably higher than ever. On average we are
living longer so will need more resources – at a time
when the quality of pensions offered by employers are
reducing.
A clear plan of what resources are needed for later
life is growing in importance. Spending a little time to
develop this plan is probably the most important stage
in investing. Without a plan how will you know whether
you are on track? This is an area where a good financial
adviser can really help. Any plan will of course need to
understand the risks.
By DAN Norman,
TCF Investments
THE RISKS.
There are some obvious and less obvious risks that
all investors face. Chief among them are inflation and
volatility (the ups and downs). Another potential issue
is cost – research shows that reducing the cost of your
portfolios / funds is likely to lead to better returns.
Every investment has a different risk profile. Cash isn’t
volatile but it is poor at beating inflation. Equities usually
beat inflation in the long run but are more volatile in the
short run.
Understanding your own risk profile is critical as it is
the only way to build a portfolio that will meet your long
term goals – you need to know:
•
Your attitude to risk (your appetite if you like)
•
Your need for risk (how much return (as risk and
return are linked) do you need to meet your goals?)
•
Your risk tolerance (can you afford short term
losses in pursuit of longer term goals?)
Too many investors underestimate the impact of
inflation. Many people aged 60 today will live well into
their 80s and beyond.
Your investment plan needs to take account of this.
