12 July 2021
Investing: get off to a flying start with these 5 tips
Investing is where the smart money is. These days that’s common knowledge. But before you begin, read our top tips so you can get off to a flying start.
1. A little self-knowledge (as an investor) goes a long way
It’s worth spending some time looking into a mirror before you start investing. Ask yourself: how much do you know about investing? How do you think you’ll handle possible losses? How long can you afford to have your money tied up in investments?
Your investor profile is a compilation of all the answers to these and similar questions on a list that you fill in — with the assistance of an ING adviser, if you like
This builds a picture of who you are as an investor: your investor profile. You can see it as a kind of financial passport which gives you access to the investments that are best suited to you.
What are the investor profiles that you can have at ING?
- Capital protection is of vital importance to you. You are prepared to take an extremely limited amount of risk in order to obtain a potential return. You are willing to accept only slight fluctuations in your investments.
- Your investment horizon (the minimum period that you are willing to have your money tied up in investments) is at least three years.
- Your portfolio is mainly made up of bonds and cash and may contain up to 20% in shares (and/or similar products).
- Capital protection is important to you. You are prepared to take a limited amount of risk in order to obtain a potential return. You are willing to accept light fluctuations in your investments.
- Your investment horizon (the minimum period that you are willing to have your money tied up in investments) is at least three to five years.
- Your portfolio is mainly made up of bonds and cash and may contain up to 40% in shares (and/or similar products).
- You are looking for a balance between stability and growth in your investments. With an eye for higher returns, you are prepared to take a calculated risk and accept that your capital may fluctuate.
- Your investment horizon (the minimum period that you are willing to have your money tied up in investments) is at least five to seven years.
- Your portfolio is evenly distributed with 50% in shares and and/or similar products and 50% in bonds and cash. The maximum exposure to shares may, depending on market conditions, be as high as 65%.
- You are looking to achieve growth in your capital over the long term. You want high returns and are prepared to take risks to achieve them. Your capital may fluctuate strongly and suddenly as a result.
- Your investment horizon (the minimum period that you are willing to have your money tied up in investments) is more than 7 years.
- Your portfolio is composed almost entirely of shares (and/or similar products) and a limited amount of bonds and cash.
Good to know: your risk appetite may vary over the years, for example, you could inherit an amount of money that changes your view of your capital. Because your investor profile can change over time, it is a good idea to review your profile every year.
2. Get advice (but not from a neighbour or at a barbecue)
When investing, it’s best to get the advice of an expert. Choose that expert carefully. Your neighbour or best friend might have been investing for years, but it does not necessarily mean that they have the same needs or attitude towards risk as you do. Optimal decisions are taken with the help of somebody who knows about investments, as well as your profile and personal circumstances.
3. Keep your eye on your investment horizon
Investing is done only with money that you do not need in the short term. Depending on your investor profile, that might mean within the next three years (at a minimum). It’s wisest to check first that you have a sufficient savings buffer. Generally, the amount you should have in reserve is three to six months’ worth of net household income. It is also not a good idea to invest money you have earmarked for any significant expenditures that you plan to make within the next year, such as buying a house. After all, investments can fluctuate which may mean you have to sell your investments at an inopportune moment.
When the markets are doing well, investors sleep soundly. But when things are going less well and the markets are yo-yoing, you might be left suddenly feeling unsettled, especially if you have just started investing. In such situations, panic is a poor adviser. That is why it is vital to keep your investment horizon in mind, and to not be led by the prevailing market sentiment. Interim falls – even quite sharp ones – are all part of it, but as a rule, markets do right themselves again. Whether you are looking back to the market crash (in 1929) that caused the Great Depression, the worldwide panic during Black Monday (in 1987) or the Global Financial Crisis (in 2008): markets recover every time, no matter how seriously we experience the crisis at the time.
4. Opt for a diversified portfolio
The expression ‘don’t put all your eggs in one basket’ is especially true of investing because it is impossible to predict which investments will perform best. One year, technology shares will be achieving the highest yields, and the next year company bonds will do extremely well. To spread the risk as much as possible, invest in various asset classes (shares, bonds, cash), sectors (technology, healthcare, etc.), geographic zones (Eurozone, the US, emerging economies) and themes (food, climate, etc.). It could also be an attractive idea to spread your investments over time. You can do that with a periodic investment plan, for example. Investment funds are comprised of dozens or even hundreds of shares and/or bonds, which makes them an attractive solution for diversifying the risks.
5. Sustainable investment
You can also opt to invest sustainably. This type of investing takes environmental, social and corporate governance criteria into account. Your money is only invested in companies and governments that meet these requirements, which means you will also be supporting the transition to a more sustainable economy. Sustainable investing is not only good for the environment and society, but also for your own portfolio. It can yield the same level of return as ‘traditional’ investing does, as various studies have shown.