Investments – Four Key Points

The world of investments can seem very complex, and it is. There are countless factors and variables that are taken into consideration by investors. Some very factual while others more subjective to the individual investor.

At IEP we can simplify that information to help you better understand the issue!

One can break the main topics to consider into four main headings:

Time

What is the timeframe you are happy with? It is a short, medium or long term investment you are looking for?

The timeframe available to you as an investor will help determine which type of investment and asset classes are going to be more suitable.

Investing in stocks for example is generally for the longer term. If the money is required in the next couple of years then perhaps a high yielding savings account is more suitable.

Diversification

‘Don’t put all your eggs in one basket’ is a lifelong lesson taught to us over and over again. It is also true that within the investment world it is wise not to hold all your eggs in one basket, namely you should diversify across a spectrum of different investments.

One of the more important decisions will be how much to invest in stocks versus bonds – again the timeframe will help determine this.

Cost

What might seem like a tiny cost, or a very small percentage, multiplied over a lifetime of investing will have a huge impact on the overall returns and the results you see as an investor. A 1% fee may seem small but can easily erode thousands of pounds over a longer period of time.

NB. Don’t, however, be driven by cost alone. To quote Warren Buffet, ‘price is what you pay, value is what you get’.

Ease

There are funds that can be managed for you or some investors prefer to manage their own investments. The debate on active vs passive investments is also important here.

The overall consideration should take all four of the above points into consideration.

An automatically well-diversified portfolio which is managed for you over a period of time might be easier for most individuals but will probably cost more.