If you planned to make 2022 your year to invest, but it didn’t come to fruition – don’t be too hard on yourself. Last year brought about many surprises, including higher-than-expected inflation, volatile market conditions, and geopolitical uncertainty, mainly from Russia’s invasion of Ukraine.
But 2023 can still be your year to start investing the right way by setting yourself achievable goals to grow your pension pot for retirement—remember, everyone has to start somewhere!
This article outlines the basics of investing for beginners and four new year’s resolutions you can follow to start your investing journey the right way and ultimately grow your wealth in 2023 and beyond.
Investing for beginners
So what does investing mean? Investing, in layman’s terms, is putting money aside for the future and letting it grow. When you invest, you’re buying something you believe could increase in value over time. For example, you might invest in gold as you think in 10 years it’ll be worth significantly more than it is today.
So why do people invest instead of relying on savings accounts? Investing has the potential to generate better returns, but you may need to wait to see those returns, perhaps setting aside a minimum of five years to see any real growth.
It’s also worth noting that investment values can also decrease and increase.
The most common types of investments are:
- Commodities (such as gold)
But investments can stretch to many things, such as art, wine, luxury watches, and solar farms. The list goes on!
So, what’s the best way to get started?
Resolution 1: Understanding all things investing
Firstly, ensuring you have a broad understanding of investing will be essential. We recommend reading the resources on our website and doing independent research.
Here are just some of the websites we recommend:
Investopedia is one of the best resources for learning the concepts of investing and trading. They have one of the largest libraries of articles on investing, trading and finance in general.
Investing.com is one of the world’s largest investing websites, giving you hundreds of resources and real-time data on stock markets. This is the UK-specific website which is an excellent place to start.
Brite post weekly content tailored to UK ex-pats who want to learn more about current events, the latest market updates and more. You can subscribe to our mailing list to get everything you need directly to your inbox.
Resolution 2: Build a solid foundation
The first step of a smart investing strategy is to ensure you’re ready to invest. Before making an initial deposit, you’ll want to ensure some core financial wellness basics are set, including understanding your spending habits and creating a budget that works for you.
You’ll also need to pay off any high-interest debt. This last bit is significant to do first because it will cost you more in interest to carry that debt balance than you’d be able to earn by investing. We also recommend building up an emergency fund before you start investing. That way, you’ll have a cushion in case something happens.
Resolution 3: Choose the right investment strategy
Once you have built your foundation, you must consider which strategy you want to use when getting started. There are two main investment strategies which may yield different results, and we will outline them below:
1) Lump sum investing
Lump sum investing, in simple terms, means putting a large sum of money in on day one instead of spaced out in equal amounts over time. A good example is using a windfall to buy multiple stock shares simultaneously.
A 2021 report by Northwestern Mutual found that if you choose to make a lump sum investment instead of dollar-cost averaging, you are more likely to have a higher balance over time.
2) Dollar-cost averaging investing
When you dollar-cost average, you invest amounts in securities at regular intervals, which minimises risks by building your position in the markets over time. So instead of attempting to time the market, you start buying in at different prices.
One main benefit of dollar-cost averaging is helping investors to feel less like they’re betting everything at once by spreading out their investments. It’s no secret that some investors can make impulsive decisions based on sudden market changes, which can easily lead to significant losses. This strategy may protect those types of investors in the long run.
How do you choose?
If your risk tolerance is low, the dollar cost averaging strategy can help prevent you from making more significant losses by spreading your investments over time and through market fluctuations. However, if the risk isn’t your primary concern, lump-sum investing can help you maximise your investment returns.
We suggest choosing between dollar cost averaging and lump-sum investing by evaluating your risk tolerance, investment horizon and ability to stick with an investment plan.
Resolution 4: Think about investing fees
The final resolution for you to take on board is always to check and understand the fees associated with investing. We have highlighted some of the most common ways you might face extra fees:
- Portfolio costs
- Platform charges (ongoing and dealing)
- Annual Management Fees (fund charges)
- Advisor costs
According to the advisory comparison website VouchedFor, the average initial fee for an investment advisor is 1.74% and ranges from 0 to 2%. However, upfront fees can be as high as 5%. The average ongoing fee is around 0.79% but varies depending on your required service. There may be additional costs, which you should always check before going ahead.
Want to find out more?
Brite can help you grow your wealth by offering an all-in-one pension service – from advice to transfers to pension administration and asset management. Our investment philosophy bases itself on taking the long view and thinking about protection first – as nobody knows what’s around the corner.
We use ETFs, which track an index, a specific asset or a basket of assets. ETFs cover many market areas, including stock indices, sectors, commodities, currencies, bonds and even instruments that track the stock market’s volatility.
We use them because they are a lower-cost way of investing in the stock market, and we can pass that saving on to you at a low fee, meaning over time, you get a better return as more of your savings are reinvested.
Please get in touch with us if you’re a UK ex-pat with a private pension and want to find out more.