10 things to watch out for when...Starting to invest

PUBLISHED : Sunday, 30 December, 2001, 12:00am
UPDATED : Sunday, 30 December, 2001, 12:00am

Calculate your worth: Make a note of all your assets, no matter how insignificant they seem. That way, you can work out what sort of investment suits you and over what time frame.

Don't spend more than you earn: If you live in debt, there is no point considering investing in stocks. Paying hefty credit-card charges each month will eat away any investment returns you may earn.

Know your risk levels: Think carefully about your future plans and where you would like to be in a few years' time. Consider the objective behind your decision to invest: are you aiming to retire in a decade, or are you saving for a deposit on a house? Your age and circumstances, as well as economic conditions, will determine the right investment for you.

Have a nest egg: Keep at least three months' wages available in cash before considering any other investment. That way, you will not lose out by having to liquidate a poorly-performing asset at an unfavourable time.

Learn the basics: Find out about various asset classes and their characteristics. The market for property may appear favourable for first-time homebuyers, but a house is an illiquid investment. Equities are relatively volatile, but can be liquidated quickly.

Dollar-cost average: First-time investors have a lot to learn. By contributing a small amount to a savings plan each month, you avoid having to decide when the time is right to buy - a skill even most mature investors fail to get right. Regular contributions take the emotion out of investing.

Take advice: Avoid following the herd and buying into the latest fashionable initial public offering. News takes a long time to filter down to the guy in the street and chances are that any hot tip is past its sell-by date. Spend some time with a financial adviser, read the papers or books on investing. That way, you can make educated decisions.

Build a core position: Create a core investment portfolio in something solid such as blue-chip stocks that will bring in steady gains over the years.

Diversify: Once you have a core position, look around for satellite investments that may spice up your portfolio. Do not only buy equities, consider bonds, property or collectibles to protect yourself against poor performance in one asset class.

Hang in there: Stick to your plan, even if your investment seems to be floundering. New investors are often driven by emotion and react at the wrong times. Financial experts will tell you that timing the market is almost impossible, but time in the market will eventually pay off.

Graphic: triggbgwz


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