This is my personal investing manifesto. Roughly 90% of my household’s investable assets reside within tax efficient investment wrappers. The remaining 10% is in a rainy-day fund, currently earning a whopping 0.75% per year in an online savings account. In amassing and managing these assets, I adhere faithfully – most of the time – to these basic principles.
Do’s
Save
You can’t invest money until you’ve saved money. Saving is all the more important in the context of the depressingly low expected returns we are facing today. The market likely won’t do the heavy lifting for you over the next few years, so you will have to shoulder more of the burden.
Keep it Simple
Don’t stray from your circle of competence. It’s all too easy to be lured outside your comfort zone by hot tips and marketing promises. Complexity is costly and rarely yields benefits to the consumer. This applies to investment products, home appliances, you name it. The further you stray from your circle of competence, the more likely it is you will get lost.
Keep it Cheap
Fees subtract directly from your investment returns. Be stingy when it comes to the price that you pay for investment products, as well as the price you pay for advice.
Be Tax Aware
Don’t give the taxman a penny more than you have to. Use tax-efficient wrappers such as SIPPs, ISAs and your workplace pension, utilise your allowances and consider investments which offer tax breaks such as Venture Capital if that matches your risk appetite.
Keep a Decision Journal
Scribble some notes to document the reasons behind your buy and sell decisions. This will keep you honest, help you learn from your mistakes, and give you a more sober view of the underpinnings of your successes.
Set Aside Some “Funny Money”
Put aside 5% or so of your portfolio for dabbling purposes. Use it to buy that hot stock someone told you about. You’ll win some and you’ll lose some, but most importantly, you’ll prevent yourself from doing silly things with your serious money.
Don’ts
Overpay
Yes, this is just restating No. 3 above, but the importance of keeping costs under control cannot be overstated.
Watch Your Portfolio
Try not to pay too much attention to what is going on in the markets and how it is affecting your portfolio on a day-to-day, week-to-week, or even month-to-month basis. Tune out the news, ignore your portfolio now and again, and maybe pick up a good book instead: I recommend Jack Bogle’s “Little Book of Common Sense Investing.” This is exceedingly difficult, but tuning out short-term noise can keep you focused on your long-term goals and prevent you from tinkering with your portfolio at exactly the wrong times.
This article was originally published in Morningstar's ETF Investor magazine. It has been edited so it is suitable for a UK audience.
