Six things every investor should know
There’s much to learn when it comes to the world of investing. Getting started is arguably the hardest thing. From then on you should keep track of your investments and review choices to ensure they are still on track to meet your goals.
We have identified five things every investor – whether you’re a beginner or a seasoned investor – should know to help you keep track, and to help investments work better for you.
1. Timing isn’t everything
If trading stocks is your day job you will be watching share prices like a hawk, day in day out. But as a long-term investor, it’s important not to become fixated on trying to time your investments according to share prices, what’s happening in the economy or anything else – apart from whether it’s the right time for you to invest.
It is time in the market, not timing the market, that tends to matter more when it comes to meeting your goals. This can help your frame of mind during any market falls which impact the value of your investments, allowing you to focus on the potential longer-term gains.
2. Diversification is key
Stock markets don’t move in a straight line. There are lots of ups and downs which is part and parcel of investing in shares – whether buying shares directly in companies chosen by you, or via a fund where your money is pooled with other investors and a fund manager will select, buy and sell shares on your behalf. Investors can’t tell what’s around the corner, but a good way to prepare for the unexpected is by having a diversified portfolio built to perform in all kinds of market conditions.
A well-diversified portfolio is where your money is invested in a range of investment funds that give you exposure to different asset classes – bonds as well as shares – regions and sectors. It can help you reduce the overall risk of losing money, although you can never eradicate it completely, and allow you to invest with more confidence.
By having a diversified selection of investments, you can reduce the impact of any single asset, region or industry’s poor performance.
3. Understand risk
An important element of investing is choosing the right level of risk you take with your money. On your travels to pinpoint the right funds for you, either individual funds or those chosen by Barclays experts through our Ready-made Investments (RMI), you will see risk ratings.
One common barrier to making decisions when it comes to investing is fear of risk. It’s not something to fear, but it’s important to fully understand it.
On one hand you might be feeling too cautious to take on too much risk with your money but it’s worth remembering that with higher risk can come higher rewards. On the other hand it’s worth avoiding being seduced by a run of high returns on a risky sector, for example. The highs are good as long as you can handle – and afford – the lows.
4. Weigh up saving v investing
When you’re tempted to stash your long-term money in a deposit account if either interest rates on savings look attractive or because worrying about risk has got the better of you, it’s worth remembering two crucial points.
- Saving in a standard deposit account comes with risk. You won’t end up with less than when you started, but the spending power of that money is diminished as time goes on thanks to inflation.
So, while there is no risk to the original sum you pay in, if that money stays put in the long-term earning low returns, you could be left with pot of money with far less buying power.
- Secondly, historically over the long term returns on shares have beaten those on cash. The Barclays 2024 Equity Gilt Study shows that over the last 130 years, the probability of shares providing better returns than on cash on any two-year basis was 70%, and this figure rose to 91% over 10 years. You should never rely on past performance, but the figures remain compelling.
5. Don’t invest on impulse
According to the latest Barclays consumer research, 23% of investors are now turning to social media, community messaging apps and online forums for investment guidance.
Subsequent research by the Financial Conduct Authority (FCA) also showed that a growing number of young investors are turning to social media for investment support and worse still, that they’re rushing decisions about where to invest their money.
While social media platforms play a positive role in making investment information more relatable, they also come with risks as it can be difficult to figure out which accounts are trustworthy and run by experienced financial professionals- and which are not.
The Barclays’ research also shows that over half of retail investors don’t carry out regular checks when using guidance from social media ‘finfluencers’.
By failing to do your own research runs the risk of making unsuitable investments or even falling victim to investment scams. If, as the FCA’s research highlights, many people are also rushing into investment decisions, this increases the risk even further.
6. Do your research
The golden rule is to never invest in anything you don’t understand. A short video on a social media platform shouldn’t replace your own research into funds.
You can use Barclays research centre as a starting point. Here you’ll find news, analysis and performance figures. You can also use the Barclays Funds List which will provide you with a selection of funds from the investment sectors Barclays’ experts believe are key for building a diversified portfolio to help your money grow well over the longer term.
If you’re unsure where to begin, our five Ready-made Investment funds are designed to help you if you’re short on time or need some inspiration. You don’t need to be an expert yourself because our investment team create and monitor the funds.
