Financial Self Appraisal
Identify your financial goals and select suitable investments to match your particular needs whether it be income flow and/or capital appreciation.
Financial Plan
Decide on a risk profile, which suits your personal financial circumstances and based on this initiate a financial plan determining the value, duration and expectation of your investment. Your financial plan should be reviewed regularly to adopt to your changing financial circumstances.
Risk Profile
Based on your financial circumstances you must decide where to place your finances while assessing the risk/reward ratio. Investors should be aware of the downside as well as upside of any potential investment opportunity. Factors which should feature in any risk profile include age, income flow, requirements for cash, etc.
Investment Duration
Time plays a critical role in deciding upon the appropriate investment mix. As a general rule the longer your investment time horizon, the more of a skew you should have towards riskier assets.
Asset Allocation
Having defined your financial plan and objectives, you must decide on the most appropriate mix of various assets (stocks, gilts, property, cash) to attain these goals.
Diversify
One of the best ways to manage risk is to diversify your investments. This is especially so in the case of your equity portfolio, where a balanced approach in terms of geographic, sectoral and stock spread can reduce the sensitivity of a portfolio to individual influences.
Don't Panic
Often in volatile markets, investors panic and trade stocks without concern to the initial financial plan which they established. It is in volatile markets that investors must avoid making rash decisions but stick to their initial financial goals.
Tax Implications
Although investment decisions should never be made based solely on the back of tax considerations, tax can have a marked influence on overall portfolio performance. Consequently an understanding of taxation implications should be factored into any decision making.
Stock Analysis
Many investors appears to follow the misconception that the past is an indicator of the future. As a result they often choose investments which have produced solid returns over more recent times believing this will continue, without investigating the factors which have driven this growth and whether they are sustainable over the longer term.
