We’ve done a lot of thinking so far about making investment decisions, so let me warn you about some things to AVOID.
Analysis paralysis: you can always gather more information and built another spreadsheet. At some point you have to stop thinking and make a bloody decision! (How many times have I wished to yell this at bosses?)
Doing nothing: you’ve decided. But it’s a worthless decision until you do something. Obvs.
Investing in only one thing (or type of thing): don’t put all your eggs in one basket. Diversify your investments! Bought a home? Great! Now start an ISA.
Trying to cheat the tax man: ‘I don’t have to declare this.’ Hmmm, nup! One day that clever loophole might close, and you may have a whacking big bill.
‘Sophisticated’ strategies:securitised CLOs? CfDs? Options? Unless this is your area of expertise – invest in stuff you understand. If this is your profession, invest in some boring stuff first.
Expensive sh*t or ‘upsizing’ your investment: This is particularly relevant to real estate – try not to max out all your resources in one investment. Do you need a luxury new-build? Really? Do you really need a guest room? (My mum asked me why we didn’t have one, and I said we would if she funded it. That was a great conversation…) What if the value of your investment goes down? Perhaps you may need to settle on that flat in Tooting for now.
Stuff that you wouldn’t buy for yourself: Again, this is very relevant to your first real estate purchase – if you wouldn’t live in it, don’t buy it. One day, you may have to live in it.
Get rich quick: If it sounds like a thebest idea ever! it’s probably someone trying to cheat you.
Doing it all yourself: Sometimes a 5% fee is cheap, and free brokerage is expensive. How much is your time worth? Good investment managers and tax accountants can provide an effective time offset. And we can help you ask the right questions. If you have complex tax arrangements, it’s worth hiring someone who will get your tax right. Unless of course, you’re a tax accountant. In that case, do your own tax return.
Now do this!
Be an imperfect investor: Investing in a ‘good enough’ investment now is better than waiting too long for the ‘perfect investment’ to appear.
Invest in the boring stuff first: Pensions, I’m talking about you. Also, you too ISAs.
Keep it understandable: If you can’t explain it over (or after) a glass of wine, perhaps it isn’t the best investment for you.
Decide, then act.
For a bonus: If you have some spare time, and don’t know about it already, learn about the Time Value of Money. Seriously, it’s all you will ever need to know to understand what your money is doing. Some people say you should do this first – enough to get started. Getting this knowledge can take time and effort, and could send you down the rabbit hole of investment theory. But understanding the time value of money is the path to financial literacy and independence. Learn this, apply your knowledge, and nobody will be able to bullshit you again. Go on, chuck it at your search engine and see what sticks.
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