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Five tips to be a successful first-time investor

Joanna Faith
Written By:
Joanna Faith

Essential advice if you’re new to the world of investing – or you just need a refresher on how to succeed.

Millennial financial habits are often in the spotlight and usually for good reason; student debt is on the up, living costs are increasing cause for concern and saving for a home deposit is so daunting that many people have given up on the dream of one day making it on the property ladder.

Millennials differ from previous generations – not because of an overwhelming desire to be different – but because many millennials came of age during the 2008 financial crash, which largely shaped their attitudes towards saving and investing compared to previous generations.

Based on pre-financial crash growth rates, the Institute for Fiscal Studies reveals individuals in their 20s are earning 5% less than what they should be, with those in their 30s 7% worse off. It’s therefore no wonder that 53% of those in their 20s had no money in a savings account or an ISA between 2014 and 2016 (Office for National Statistics). A figure which has risen from 41% in 2008.

While there are lots of reasons why millennial financial habits may be different from previous generations, there is no reason why it should hold them back from planning for their financial future. While investing was once reserved for those with deep pockets or access to a personal financial adviser, changes in technology have made it easier to get started from as little as £1.

For those just starting out, here are a few tips on how to become a successful first-time investor:

Start early

Time is your greatest ally! The earlier you start, the more you can reap the benefits of compound interest in the long term. What’s compound interest? Simply put it’s the principle that any interest your money earns also earns interest, and the larger your balance grows, the bigger those interest numbers become. For example, if you invest £100 at 5% you have £105 at the end of the year. The next year, that £5 also earns interest and though the numbers sound small, compound interest is one of the main drivers of investment returns over the long term.

Diversify your investments

The saying ‘don’t put all your eggs in one basket’ also applies when investing. Make sure you aren’t only selecting stocks from the same asset class or country. For example, don’t have all your money in UK stocks but make sure you are getting exposure to other global markets as well. An easy way to do this is to invest in an index fund that tracks the entire market – giving you exposure to a variety of companies and businesses – versus placing all your bets on one stock market.

Keep costs low

The average fees payed by investors in the UK is 2.6% for investment advice and management. While it may not seem a huge amount in the short term, over the long-run you could be giving up tens of thousands of pounds of your hard-earned savings. Shop around and make sure all fees are displayed upfront. A good rule of thumb is you should never be paying more than 1% of what you are investing in a fee.

Set it and forget it

This rule applies to all your finances. The best way to take the emotion out of money is to automate it. A direct debit from your pay cheque into a saving or investing account is a great way to trick yourself into saving more money, and when it comes to investing will mean you are less likely to react out of fear (or elation!) when faced with market volatility.

Stick to your plan

Once you have a plan in place, focus on what you are trying to achieve in the long run. If you’re saving for retirement, but aren’t planning on retiring in the next decade, stop focusing on the short term. What happens now shouldn’t really matter to you as you have the benefit of added time.

While it may be tempting to follow the daily headlines, drown out the daily noise of what’s happening in the market (prices, fluctuations etc.) as you’ll be a much more successful investor if you stay the course. Reacting when markets are good, or when markets are down won’t help you achieve your long-term goals.

Brian Byrnes is investment adviser at Wealthsimple, a robo-advice firm.