Young money blogger Iona Bain: Five rules for young investors
As the founder of the Young Money Blog, I know the fears around first-time investing all too well. People ask me: what if I lose all my money? How can I time the markets? How can I compete with the investing big boys?
We all feel scared when we dip our toes in the stock market for the first time - I'm no exception. But while there are no guarantees with investing, the trick is to manage your risks and get clued up about your options. So here are my five investment rules for young investors. Remember that you've got to be in it to win it!
1. Play a long game
Make a plan and stick to it. Why are you investing? What are your savings goals? When do you want to get your hands on your money? Remember that shares aren't suitable if you need the cash within five years. The longer you can invest, the better your chances of making a decent return.
2. Be cost-conscious
It's not just what you invest in. It's HOW you invest. There are loads of options appealing to young investors today, but what's the story behind them? If you're being quizzed about your attitude to risk, chances are that you'll be handing the keys to your investments to a manager (or computer). The alternative is to bone up on shares, funds, investment trusts and exchange-traded funds, and use a platform to invest in them. There's no right or wrong answer, but compare the costs of each option, as they really add up over time. Firm up how much you're prepared to pay.
3. Own your investments
Whether you outsource or take control, there's no substitute for understanding your investing style. Are you a futurologist, interested in emerging markets and technology? Will you focus on certain regions or industries? Will you major on value, growth or income? Whatever appeals, make sure you diversify. Don't pile into tech or Brazil or a FTSE 100 tracker fund - mix it up, however small you start. A global growth or multi-asset fund could get you exposed to different types of asset and sectors of the economy.
4. Manage but don't fiddle
Don't obsess about how your investments are doing in the short-term - get on with stuff and put your faith in the long-term power of the market to make your money grow. Drip your savings into the market regularly, not in one-off lump sums, as this will smooth out the ups and downs. Check in with your portfolio, say every six months, to make sure it still has the right balance. And reinvest your dividends. A £100 investment in shares in 1950 had grown by 2016 to £10,749, but with the dividends reinvested it would have reached a mind-boggling £182,494. That's according to the Barclays Equity Gilt Study from 2017 (the most up-to-date available).
5. Keep a cool head
You tend to only get news notifications about the stock market when it crashes, perhaps on political or economics news that has freaked investors out.
Learn to screen out some of this white noise, whether it's good or bad. Even when markets are sky-high, keep your feet on the ground and stick to your plan.
Understand your own investor mindset. You'll often be torn between greed and fear, tempted to follow the herd, anxious when markets fall, minded to buy high and selling low instead of vice versa, and become sensitised to news. Remember that your portfolio needs a bit of risk, properly distributed and managed, to make that money tree grow. Put your "hot head" to one side and cultivate your "cool brain" - you'll be very glad you did!