Investment savings rates in the UK are on the grow, with government figures showing the amount invested in stocks and shares ISAs growing by £1.6 billion between 2018/19 and 2019/20. All good news? Well, not particularly.
That’s because between January and July 2022, stocks saw their worst half of the year since 1970, with popular indexes like the S&P 500 and FTSE falling precipitously. The war in Ukraine, global supply shortages, and soaring inflation are just some of the factors affecting the pound in our accounts, but if you have money invested, how can you maximise your returns in the face of such turbulence? Read on to learn how.
Do your research
If you really want to be a savvy investor, do your research. Understand what stocks and shares you want to invest in, whether you’d be better off with investing in indexes or funds, and what the historical price moves of these investments have been, so you know how they react to different economic situations.
A good idea can be to experience investing with smaller amounts in different markets to get a feel for how it works.
Aim for the long term
If you are looking for short term gains through investing then you are subjecting yourself to a significant amount of risk, with the possibility of making large, short-term losses. To avoid this, choose investments with an eye for the long term and don’t be scared into selling when big drops occur.
Diversify your investment portfolio
You should aim to create a diverse portfolio to manage risk. To do this, invest in unrelated and different channels of investment, such as stocks from different industries etc.
You can use a range of tactics too. Using spread betting to speculate on asset price movements, for example, lets you diversify your portfolio by using an alternative investment method where you can speculate on a range of different markets without owning the underlying asset.
Manage your risk
Before investing, you should calculate the potential return versus potential loss. If the risk outweighs the potential reward, then stay away. You don’t need to take on too much risk, so consider a range of stable investments, peppered with a few more volatile ones and moon shots that will pay off nicely if successful, but not impact your bottom line heavily if they don’t come to fruition.
Know when to sell
A key part to the success of any investor is knowing when to sell. This could be before the value of your investment drops, or when it’s at a high so you can cash in. Look back at market trends and use forecasting to analyse peaks and lows in the market, helping you to know when a good time is to sell. Similarly, look at economic and external factors that could affect a market and identify whether you think this could cause you to lose money on your investment if you don’t sell.
That said, if there’s one mantra every retail investor should repeat, it’s that time in the market beats timing the market. In short, this means that if the value of your investments fall, unless you really need the money, leave it where it is and ride out the shock. The value is almost certain to bounce back over time, especially if you’re invested in an index or fund.
