Avoid complications

• Borrowing to invest is always a bad idea and hugely risky.
• Using derivatives or CFDs may seem easy, but it isn’t. The perception is such geared investments entail paying only a small amount compared to the whole investment amount and betting on whether the share prices will increase or decrease. But risks are often ignored or even worse, not well understood. If the price of the share increases, you receive profits, or when the price of the share falls, you lose all your money, or sometimes if the loss is big enough, you are liable to pay more money.
• Put simply, invest in the stock market your savings and surpluses – do not borrow and put yourself under unnecessary pressure.

Take advice

Be willing to pay for good advice it always pays back many times over.

There are times to save money and there are times to spend it. If your loved one needed brain surgery would you look up Youtube videos before putting the loved one under the knife?

You wouldn’t, at least we hope so.

Similarly, do not save money when it comes to seeking good advice. Try to seek advice from an experienced qualified Financial Advisor not from a YouTube video man, who barely has his first moustache, teaching you “how to be a millionaire over the weekend.” Do not get fooled.

The first step to being wise is to stop being foolish.

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1. There is no gain without pain – You have to move out of your comfort zone to achieve things in life. Similarly, you have to venture beyond cash savings in the bank.
2. Keeping all your money in a savings account is like going at 10 miles an hour – on an empty motorway. It will get you nowhere.
3. You are saving and accumulating for later years (10 – 20 – even 30 years).
4. Do not confuse volatility with risk (permanent loss of capital).
5. Equity markets are volatile but that should not worry you if you are a long-term investor. Be prepared to withstand short-term losses for long-term gains. Ships are safest in the harbour (rather than the seas) but that is not where they are supposed to be!
6. Having said that, create a portfolio based on your own personality.
7. Under all circumstances, stay away from fad.
8. Diversify your portfolio, no matter how attractive a particular share or fund is.
9. If you have a choice of investing in a lump-sum vs investing in monthly installments, prefer regular monthly (or even weekly) installments using direct debits, avoiding yourself the hassle of doing bank transfers (and giving yourself an excuse to procrastinate).
10. Most investors invest when the mood is “good” which means they invest when the price is high…. and sell when the price is low. Do the opposite.
11. Have patience and be disciplined.

Patience is the key! The power of compounding only works if you stay invested for a long time. Remember it is ‘Time in the Market’ not ‘Timing the Market’.

Making the most of Tax-Free Savings and Investments

• If you don’t pay tax, then there is no advantage in opting for tax-free investments. But if you are a tax payer or aspire to be one in the future (it is a privilege to pay tax), then invest in tax-free wrappers such as ISA and SIPP;
• If you are in the UK, take full advantage of your annual ISA allowance – currently £20,000 per annum;

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• Goal 1: Live within your means (more later).
• Goal 2: Pay off all your credit card bills (it is probably the most expensive debt you owe).
• Goal 3: Pay off all your short-term personal loans (most likely the most expensive after credit cards) but perhaps not your mortgage (perhaps the cheapest form of debt).

Having cleared the debt burden, your next step is

Create a Rainy Day Fund

No one in the world can predict what’s going to happen next. Always prepare for the worst and hope for the best. Having an emergency fund keeps you covered for a few months if you lose your job or other earnings. This Fund is typically to cover expenses for 6 months, in case of emergency. Put the money away in the best instant access savings account you can find in the market.

Building wealth does not depend on the amount of money you earn, rather it depends on your saving and investing habits. The earlier you start saving and investing, the more wealth you can build over time. Before starting this habit, it is important that you define your financial goals and objectives. If you are saving for your long-term goals, then you should consider investing in equities as this asset class has provided the most returns in history. (Do not take our word. Instead, we encourage you to google “equity returns over the long term” or something similar and read research papers and studies that have demonstrated this). Be curious and read more.

If you are saving for short-term goals, then you should put your money in a savings account. It will earn only a small interest but you will avoid all the stress that comes with stock market volatility.

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