Investment Write For Us Investment Guest Blog Submission

Investment Write For Us – If you invest or are thinking of investing, you have already done the first step (and often the most difficult since it requires consciously sacrificing money that we could have today to receive it in the future). Once you’ve made this decision, the second step is to ensure you’re doing it right. To do this, at Schroders, we raise a series of questions that will help you make better investment decisions:

Table of Contents

1. How much can you afford to invest?

One of the essential points is that if you have debts, it is better to wait to resolve them before you start investing. In addition, it is also advisable to save an amount of money equivalent to six months in case unforeseen events or emergencies arise.

Once this is done, you have to calculate how much you earn and when you spend to know the capital you have available to invest.

2. Do you have your money diversified?

The key to keeping your portfolio ‘in shape’ is to diversify, i.e. buy different assets in different regions to balance your gains and losses. Having a mix of support and not putting all your eggs in one basket, including some in savings, is an intelligent approach. In this sense, it is also essential to distribute your money between investments, savings, etc.

3. How much jeopardy are you willing to take?

There is an apparent downside to the investing universe: the more risk you take, the higher the profit you can get. However, in the same way, if you take a high degree of risk, there is also a greater chance of losing. What is clear is that if you are unwilling to assume any trouble, you can put your money in a savings account. Your profitability will be lower, but your money will be safer.

4. How far are you willing to lose?

This also helps you answer question number three. How do you know what level of risk you can take? The amount we are willing to lose will determine the type of investment we make. Very easy to imagine what feeling you would have if your assets lost 60%. Would you feel comfortable, or would it take away your sleep at night?

5. What are you investing for?

What do you want to obtain with your investments, and how long do you want to achieve them? Depending on this, you will have to put your money to work in one way or another. For example, suppose you want to save for vacations. In that case, your investment horizon is short-term, and the product will have to allow you to withdraw the money comfortably and without significant risk. Therefore, a savings account would be a good option. If you want to save for retirement, time will be on your side and allow you to risk more.

6. Do you invest long-term and know how to manage difficult moments?

One of the biggest mistakes beginning investors make is to sell when the stock market falls and buy when it is good. You have to change the chip to buy cheap and sell expensive. Entering and exiting the market can cost us a lot of money, and on many occasions, the best option is (as tricky as it may seem) to do nothing. Past performance is not a reliable indicator of future results. Still, holding an investment for five years and even longer is advisable, even if you experience losses.

7. Will you reinvest your dividends?

When you invest in a company, you can choose how you want to receive dividends: in cash (known as income) or use that money to buy more shares in the company (called accumulation).

Simply put, compound interest represents the accumulation of interest and can help your investment grow faster. By reinvesting dividends, you give your investment the potential to earn even more rewards in the future, and so on.

Let’s use the Diageo case as an example. Dividends have increased steadily over time, and shareholders have benefited from this growth.

In scenario one: you invested 1,000 euros on December 31, 1999, and you have decided to collect the dividends each time they have been paid. Eighteen years later, your 1,000 euros are worth 3,368 euros (equivalent to an annual return of 7.2%). On the other hand, if instead of repaying the earnings periodically, you decide to buy more shares (scenario two), today, your shares would be worth 5,996 euros (taking into account an average annual return of 10.8%).

The same can be applied to funds. Most funds offer you the opportunity to receive periodic income (cash) or reinvent the earnings (accumulation).

That being said, remember that past performance is not a reliable indicator of future results.

8. Have you taken inflation into account?

Life is getting more and more expensive. This effect is called inflation, and if you don’t do anything about it, it can erode the value of your money and investments. For example, if we had kept 100 euros under the mattress 10 years ago today, it would be ‘worth’ 80 euros.

When you invest, the goal is to grow your money at a rate that helps you reach your goals and easily beat inflation. Otherwise, you will lose money.9. How much are you paying in commissions?

Before investing, ensure you know how much you will pay in commissions. There are apparently small annual fees (commission of 1% per year), which, however, can have a long-term effect on the performance of your investments. For example, when investing in stocks, you must pay the trading fee (cost per purchase and sale).

The manager will apply an annual management fee when you invest in investment funds. As with stocks, you may have to pay a broker or adviser. Their commissions are usually around 0.2% or 0.5%. As a positive point, having professional advice allows you to identify the most appropriate products for your objectives and hire funds from different investment managers.10. Do you have a plan to increase the amount invested?

One of the easiest ways to see your savings proliferate is by allocating a part of salary increases and extra pay to investment. Another option is to give money every month for this purpose.

The benefits of starting to invest at an early age are very significant. The sooner you start, the higher your capital will be.

The chart illustrates how an investment of £50 a month can grow over 30 years (investing from age 35 to 65). Assuming the investment increases by 5% per year, you will have accumulated £42,456.

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