Investment strategies
What do you need to consider when you're working out your investment strategy? We take you through the basics.
Investing is all about creating the right strategy for you. It's important to establish your investment goals and the level of risk you're willing to take from the start. Here, we help you take control of your investment plans.
Identify your goals
Income or specific goal
The first thing to think about when setting your investment strategy is to decide what you're investing for:
- To supplement your earnings or boost your pension
- To meet a specific goal, such as buying a second home
Your life stage
Next up, you need to consider that your financial goals will differ at different stages in your life (and of course, you can have more than one goal):
- If you're young, your investment goal might be a deposit on a home, or being able to afford to take off time from your career to study, retrain or take a year off
- If you have children or are thinking about starting a family, you may consider saving for school or university fees
- You may start thinking about creating an income for retirement.
Time frames
The length of time you have to meet your goals also plays an important part in shaping your investment strategy:
- Medium-term goals (five to 10 years) cover things like saving for a deposit on a home
- Long-term goals (over 10 years) cover things like saving towards your retirement income
Work out how much money you'll need
Your investment strategy needs to reflect the amount of money you need to reach your goal.
You need to be realistic about the amounts involved, and whether they're likely to go up. This is particularly important for long-term goals, such as funding school fees and generating income for retirement.
Understand your attitude to risk
If you have goals with a shorter timeframe you may not want to take much risk, as your investments will have less time to recover from sharp falls in markets. If you're investing for a longer period of time, such as for retirement, you might be comfortable taking more risk with your investments.
Aim for tax-efficiency
Whatever investment strategy you follow, it should be as tax-efficient as possible. Investing via an ISA and investing into a pension both have significant tax advantages.
Example strategies
Secondary school fees
If you were investing to fund school fees from the age 11 and started when your child was born, your investments would have a relatively long time to grow. You might consider investing in a Stocks and Shares ISA and/or investment bonds across a range of asset classes, choosing investments in line with your attitude to risk.
University education
If you wanted to fund your child's university education and started investing when they were born, your investments would have even longer to grow and to ride out ups and downs in the market.
Including a higher proportion of shares in an investment strategy offers more potential for growth, but also the potential for greater losses. You should consider your attitude to risk, your financial position and your goal then tailor your investments around this.
Retirement
40 years to go
Investing via a pension is often the most tax-efficient way of saving for retirement. ISAs are another tax-efficient way of boosting your retirement income.
5 years to go
Moving into investments which are more closely aligned to your retirement income goals is one way to make sure you're cushioned from the impact of ups and downs in the market.
