Don’t Forget These Important Investment Principles!

June 28, 2017 9:08 pm

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With our modern access to the internet, learning about managing your personal finances and smart investing is easier than ever. However, this can be something of a double-edged sword. Through trying to teach themselves about investing, many people wind up putting too much emphasis on the wrong things, and forgetting some of the more important points. Here are three commonly forgotten investment principles you need to keep in mind.

Protection Should Come Before Investing

All investments, no matter how many reputable sources tell you it’s a “sure thing”, carry some degree of risk. Most people try to mitigate this risk by sticking to low-risk investments, and getting by with lower returns. The best way for anyone to manage investment risks is protecting yourself financially against things going wrong. Anyone who had money in the stock market over the late noughties knows all too well that some parties don’t last forever! Before taking any kind of risks, make sure you’ve covered yourself with backup streams of income, an emergency fund, health and life insurance, and so on. If all your investments go according to plan, then great! If they don’t, it’s very important to have a safety net to fall back on.

Your Portfolio Has to End Up Somewhere

Even if you’ve started young and don’t have a partner, let alone a family, you need to be looking ahead. When you pass away, your assets are going to have to go to your next of kin, and it’s important to plan for this transfer of funds in advance. Slater Heelis are a family law solicitors that’s always dealing with inheritance claims that may have been complicated by poor will writing. Not choosing the right executor, leaving out assets, or not running little changes past a solicitor, can all complicate things for your family in the long run. It’s not the cheeriest subject, but make sure you have a plan for what happens to your portfolio when you’re gone.

Interest Rates on Bank Deposits Won’t Beat Inflation

A lot of people get scared off by all the risk and uncertainty that comes with proactive investing, and as an alternative, simply keep a savings account that they contribute to regularly. This may seem smart on the surface, but due to the inflation rates of many countries, you could actually wind up losing money by not investing. If the interest rate in your savings account is just a little below your home country’s interest rate, then it could be losing that difference in its value each year. Yes, in some ways it’s better to have a degree of certainty about keeping your money in a savings account. However, it’s far from an effective way to generate more capital. The only real way to stay ahead of inflation in the long term is pumping money into moderate and high-risk investments. Unless you absolutely need to play it safe, relying on bank deposits is only going to be losing you money.

As you get deeper into the world of investing, make sure you’re not forgetting these three important principles.

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