ANDREW MILLIGAN – 09 FEBRUARY 2014
I am often asked investment questions – how to get rich quickly, ‘inside secrets’, sure-fire share picks and so on. Believe me, I would happily share this knowledge if it were that simple!
There are some rules of thumb to adopt. I can’t promise to make you rich but in time, you should be a bit better off. If you are investing for the long term – 10 years or more – these eight tips might help:
1 How much risk are you truly willing to take? Peace of mind is priceless. If you can’t bear losing a quarter of your money in a year or two, don’t invest in shares. They can plummet.
2 Many people do not realise they need to save a good chunk of money over a significant period of time to end up with a decent nest egg. Magic shares that go up 50 or 100 fold are extremely rare. Compound interest is your best friend and will multiply your money over time, preferably feeding it through regular savings or top-ups if your income is variable. Saving €50 to €100 per month might feel virtuous but is it enough for your investment goals?
You need a fund of approximately €350,000 to give you an income of €18,000 per annum (half the average industrial wage) at the age of 65.
Even €200 a month over 30 years wouldn’t get you to a €350,000 target. If you saved €200 a month into an average managed fund from January 1984 to January 2014, you would have built up a fund of €268,000 at the start of this year – that’s assuming the fund made a return of 9.4 per cent a year and had an annual management fee of 1.7 per cent.
3 If you’re a taxpayer, don’t forget that long-term investment is a no-brainer. Saving through a pension gives you a tax break of either 20 or 41 per cent, depending on how much you earn. Why give the taxman 20 or 41 per cent of your hard-earned money?
4 Don’t try to time the stock market. Many people won’t have the time or the money to seize opportunities, so regularly drip-feeding your money into stock markets eliminates worries about buying at market highs or selling at lows.
5 Read widely. Money journalists tend to be very knowledgeable and bang up-to-date for investors, with insights on good value for money, latest trends, hottest products, things to avoid and so on.
6 Diversify – don’t have all your money invested in a handful of stocks, one country, one sector and so on. Many unfortunate Irish investors were heavily, if not entirely, weighted in Irish banks – with hazardous results. Don’t miss out on exposure to different returns – include small companies as well as large, emerging markets in your investment porfolio.
7 Don’t buy because the fees are cheap or the investment has performed well in the past. Charges are definite – future performance is not. The most expensive investment provider is not always the best. Active funds can out-perform or under-perform passive funds; the issue is not choosing one approach or the other but using both.
8 Good professional advice is invaluable if you’re not financially literate enough to make prudent investments decisions. for the longer-term This is particularly the case as you get older and need to decide on the timing of moving out of shares into safer assets.