FOREX HUB

Investing is how you can build your wealth, enabling it to withstand the test of time. With inflation (prices going up) shaving off £££’s from your buck and interest rates (the cost of borrowing/reward for saving) at piddly levels for over a decade, you can no longer rely on stashing your cash in the bank for decent (and risk-free) returns. Time to look elsewhere. 

But as we all know, markets are trading at all-time highs and smart people keep calling it the end of this magical US bull run. Yet if I’ve learnt one thing it’s that markets can keep going for a whole lot longer that we thought. The thing is, when it comes to stocks, and any other investment for that matter, there will always be highs and lows.

The lows give you a chance to top up on your favourite holdings (or on everything!) and buy things on the cheap. The highs remind you that nothing lasts forever and serve as a reminder to remain diversified and never put all your eggs in one basket.

There is the risk of investing when markets haven’t bottomed, yet. So, weigh up your risks (more of that later) and remember that over the very long-term everything goes up. Those nasty blips occur in the short-term. Keep that in mind next time markets take a tumble. Which could be soon. 

Luckily, the world is a whole lot bigger than US equities. You can invest in global equities (a little bit everything) or in a bunch of different asset classes from real estate to art to bullet proof your portfolio (and diversify) from any corrections/recessions/bear markets. You know, all that nasty stuff. 

But before you begin investing in your cars or crypto, you need to set out three things: 

1. Your goal(s) for investing
2. Your time horizon 
3. Your risk appetite  

The art of goal-setting 

Are you investing for your very own crib? Maybe planning for retirement? Or perhaps you’re investing to generate some passive income for yourself? Whatever your reasons for investing, it will determine a) how long you’re invested for and b) your risk appetite. These go hand-in-hand since (generally speaking) the longer you’re invested for the more risk you can afford (and will want) to take on to boost your overall returns. 

If you’re investing for a house, you don’t want your entire deposit to be sitting in the stock market (a risky and uncertain place). You’ll want a nice chunk in cash. I know you want this deposit to stretch farther and investing can certainly plump it up quite a bit but there’s also a downside to this. Hear me out: Imagine if you had £50k in the stock market (2 years before you plan to buy a home) then comes a whopping bear market. Your deposit will shrink. A lot. 

Only investing what you can afford to lose is to be taken literally. If you simply cannot afford to lose 20% of your precious deposit, don’t go investing it all. 

I’m currently saving for a deposit and here’s my plan of action: I’m building up a cash buffer first (for those unexpected moments) and I’m trying to invest as much as I can. I’m mainly invested in stocks (with a little cash on the side) but the closer I get to buying a house the more my stock pile will shrink and the bond/cash pile will grow. This way, I’ll still have some growth in my precious portfolio but I’ll also have a (plump) cushion when markets aren’t too rosy. 

So, the closer you get to buying a home, the greater the slice of your portfolio will be in cash. This is to protect your deposit against a market correction right before you need the money meaning that you won’t have to sell any assets on the cheap. Trust me, no one wants to do that. 

Time scale

If you are investing for 5 years versus 50 years, your investment approach will differ hugely. Investing over half a century means that you’re not only able to afford to dip your toes into riskier areas but you’ll have the luxury of time to be able to dive right in. Areas like venture capital (VC), crypto and alternatives (think classic cars, wine, watches and real estate) will be a savvy move since you’ll have a great stretch of time ahead of you.

See, with five decades ahead, any bumps in the road will hopefully have been smoothed out but five years is generally too short a period to take on riskier punts. The rule of thumb goes like this: the longer you’re investing for the more risk you can afford to take on.

How much risk can you stomach? 

Your risk appetite refers to how much risk you are willing (and can afford) to take. Think of risk on a scale with crypto being very risky and cash being not risky. Riskier assets (think crypto) will experience huge swings in their share prices (volatility) whereas assets that are far less risky (bonds) don’t tend to wobble in price all too often.

Your risk appetite will depend on a host of factors: your time horizon, your goal(s), your gender, your upbringing and your attitude toward money, among others.

Whether you’re male or female, your gender will affect how much risk you’re willing to take. You’ve probably heard (over and over again) how women are more risk averse (avoid too much risk) whereas men are typically more risk-loving. Since men typically tend to ‘go for it’ with less thought of what could wrong and more of ‘what could go right’, it’s no surprise that their risk-taking levels are way higher than ours. 

While I hold less crypto than some of my friends do, my risk tolerance is still higher than most. I’m comfortable investing in start-ups (very risky, since more than 90% fail) but as ever, this is a calculated risk and there are also great tax incentives for investing in start-ups.

When it comes to Bitcoin and the like, there isn’t (yet) an option to buy them within tax wrappers (ISA, Lisa or Sipp). So, until I can safely buy Bitcoin on my investment platform, I’m not willing to take a large punt on crypto. I do not fancy paying taxes on my profits and plus, I prefer when all my investments are safely stored in on place. And having my investments on a platform will reduce the temptation to constantly buy and sell. Call me weird, but you do you.

Here are my 5 golden rules when it comes to investing:

1. Have a long-term vision. Investing is not a get-rich-quick scheme. It takes a great deal of time and patience. Nothing worthwhile comes easily so keep your goal(s) in mind and let markets do the hard work.
2. Don’t try to time markets. Stick to your plan and don’t try and outsmart them. You could get burned. No one knows when markets have hit the bottom nor when they’ve peaked. Which bring me onto #3:
3. Focus on time in the market not timing the market. Time is your greatest asset so use it to your advantage. By investing consistently over a long period of time you’ll be able to generate those handsome returns.
4. You don’t have to invest everything all at once. If prices are making you nervous, why not invest a little every month? This smooths out returns and takes advantage of what’s called pound-cost averaging. By drip-feeding money into the stock market it will average out the price you pay for each investment, lessening the obsession with highs and lows. A happy middle ground.
5. Block out the noise. The world is a loud, crowded place, especially when it comes to investing. Too many people get swept up in the short-termism that can steer them off course. Yes, markets will definitely take a hit from time to time but that shouldn’t change your investment approach nor your attitude toward investing.

Putting money aside and investing for your future shouldn’t stress you out. It should be an enjoyable experience. Knowing that your money is working for you without you doing anything is one of the best feelings. This should grant you some peace of mind as well as a security of sorts.

No two portfolios will look the same. Some will hold 100% in stocks (high risk, high reward) whereas others will be mainly in bonds (low risk, low reward) and that’s normal. We all have different goals for investing and that will dictate the level of risk we take. More risk = more reward but be sure that you’re comfortable with this level of risk and that you can afford for your portfolio to take temporary hits. Don’t invest what you can’t afford to lose. So choose carefully.

Happy Investing!

This is what a typical day looks like for me