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How to be a good investor?

Ready to invest? Here are some tips to help you become a good investor.
How to be a good investor?
Reading time: 7 mins

Whether it’s planning for an epic adventure or saving for your dream home, investing could bring you one step closer to achieving your goals, as long as you know how to make the most of your investment journey. Here are eight things that will help you become a good investor.


Do your stock market research
When it comes to investing, research is key, especially If you’re picking your own investments. Typically, before putting your money in the stock market, you’ll be looking for companies worth investing in, and if you want to do things correctly, you’ll need to examine as many earning reports and balance sheets as you can. It’s also important to keep an eye on what’s happening in the world since it could have a significant influence on how financial markets perform. But it doesn’t stop there! Selecting investments isn’t the end of the journey – in fact, you’re just getting started. If you want to make the most of your adventure, you’ll need to spend some time monitoring the companies and markets you’re invested in, so you can make adjustments to your Plan if things get rocky.


Know your level of risk
As an investor, it’s important to know how much risk you’re willing to take as it’ll help you select the right investment types. If you’re a cautious person, you may want to favour lower-risk investments, such as government and corporate bonds. However, you may have to accept typically lower returns in exchange. Alternatively, if you’re the adventurous type, you may be comfortable with sharper fluctuations in your returns and you may lean towards higher-risk investments, like shares.


Consider spreading your money through diversification
Regardless of your attitude to risk, it’s always a good idea to spread your money across many different investment types and regions – in the investment world, this strategy is known as diversification and it can help you mitigate risk. By buying lots of types of investments and investing in different markets, you’re less likely to lose everything since poorly performing investments should be balanced out by others doing well. If you don’t diversify and invest all your money in one or two companies, you’d typically be increasing the odds of potentially losing everything if these companies were to struggle. So, if you don’t want your investment journey to end in a sudden way, make sure your portfolio is well-diversified.


Keep your nerve
Investing isn’t for the faint-hearted. There’ll be ups and downs, and the bumps will sometimes be scary. However, as an investor, it’s crucial to keep calm and accept that you will see your investments fluctuate in value. Seeing markets drop can be nerve-wracking, but there are ways to minimise losses. Instead of selling any investment that has lost value and making your losses real, try to keep your nerve, and think about the long-term. There’s a mantra in investing which goes ‘buy low and sell high’. In other words, buy investments when prices are low, and sell them when they rise to get a tasty return. Falling markets allow you to do just that – it gives you the opportunity to grab cheap investments which could potentially generate a healthy return when things get better.


Be patient – investing long term can be better
If there’s a virtue every investor should cultivate, it’s patience. Investing won’t make you rich overnight, but you could end up with a good nest egg if you’re ready to stick with your investments over the long-term. In fact, remaining invested for a number of years is key to building up a nest egg over time. When you invest, you typically get dividends – these are payments made on a regular basis by companies you’re invested in. By paying these dividends back into your Plan each year, on top of your initial investment, your money could quickly add up year on year – this is compounding for you. Over a number of years and provided the environment is favourable, your money could grow exponentially bigger.


Understand how much you are being charged with account fees
If you want to make the most of your investment journey, make sure you keep a close eye on the investment fees you have to pay. These costs, often presented as a percentage of your total investment, will eat into your returns, so it’s important to keep them to a minimum. If you’re picking your own investments, try not to trade too often. Every time you buy and sell investments, you have to pay trading fees, meaning the more you trade the higher the cost will be. So, resist the urge to buy and sell, and try to hold onto your investments. If you’re using an investment service, the first thing you could do is shop around and compare the different offers from similar investment services. But don’t necessarily go for the cheapest fees if this means poor service. Sometimes, it’s better to pay a bit more and enjoy a high-quality service.


Making the most of tax efficiencies
When you invest, it’s always a good idea to consider tax since it will likely affect your returns. If you’re living in the UK, you’ll likely be paying two types of tax. If you receive interests or dividends on your investments, you’ll typically be subject to Income Tax. You could also expect to pay Capital Gains Tax on your overall profit. Needless to say, these taxes will be eating into your returns, but luckily, since 1986, it’s possible to stop these taxes from affecting your returns. With a Stocks and Shares ISA, you can invest up to £20,000 each year (subject to change) and you don’t need to pay Income Tax or Capital Gains Tax. That way, you get to keep more of your returns – definitely something a good investor would do.


Perhaps you could leave it to the experts
There’s no denying it, investing on your own is hard work and time-consuming. If you’re too busy to do it yourself or just don’t feel comfortable picking your own investments, you can always get investment experts to do the hard work for you. There are many investment services, like robo-investing platforms, that’ll do the investing for you. For instance, at Wealthify, all you need to do is choose how much you’d like to invest and the risk level that suits you. Our team of experts will do the rest, from building your Plan with the right mix of investments to making adjustments to your Plan when needed.


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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