Investors are constantly in the firing line for a steady stream of advice about how, when and what to buy and sell.
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Many are seeking a rapid route to wealth, but most are in for the long-term and a quick fix is not necessarily a wise move for them.
To help sort the good from the bad, pension and investments analyst at Charles Stanley Direct Rob Morgan has a four-point strategy for becoming a more successful investor.
Compound interest will win through
Compound interest is applying interest to interest earned in previous years to grow the value of a portfolio.
He explains the process as simply buying into investments that produce an income, but instead of drawing down the income, keep reinvesting the profits in more assets that produce even more income.
“The favourite is equity income,” says Morgan. “The value of investments will grow significantly over the years when compound interest is applied. Shares producing regular dividends are ideal for doing this, providing the right stocks are picked.”
Investors who lack the confidence to do this can opt for managed funds that do the job for them.
‘Inevitables’ pay the best
Investing in ‘inevitables’ is about buying quality even if the price is higher. These shares they will always pay a decent return in the long-term.
“Some businesses are always winners,” says Morgan. “Billionaire investor talks about economic moats around some firms that make them a superior investment because they produce good quality products or dominate the market in some way.
“These strong firms are always likely to increase their domination and give a firm foundation to any investment portfolio.”
Managers are there to manage
Some managers specialise is specific markets and others take a general view, but look up their track records and let them do the all the hard work for you – it’s their job.
Invest often
Morgan argues that investing a small amount each month is often a better strategy than saving up a lump sum and spending it in one go.
“Regular investing smoothes out the bumps,” he says. “Even the best fund managers are not oracles who can foresee every low and high. Regular investing feeds your money into the markets regardless of volatility, so you don’t have to worry you are buying in at a peak.
“Many funds and ISAs accept as little as £50 a month – and with reinvesting compound interest, that can so add up over the years.”
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