How to choose the right investment
How to choose the right investment? (1:03)
Picking investments can be tricky. It’s important to think about considerations like valuation, historic performance and diversification. Generally, the best investments have decade long track records of good performance. Stocks and bonds both meet this criteria in terms of providing generally attractive returns over decades, also the right stocks and bonds can be bought and sold easily and inexpensively.
In investing diversification is a good idea. This means spreading your investments across different things that won’t all move down at the same time. For example, investing in different countries can be a good idea. Also, holding stocks, bonds and commodities can be helpful as it’s less likely they’ll all move down together.
Also, when investing, high fees can eat into your returns. It helps to keep costs low. This is one reason to consider Exchange Traded Funds (ETFs) these are generally a less expensive way to own a lot of different investments, so that can keep costs low and help with diversification.
Finally, it’s best not to trade on the emotions or fear and greed. If you can set an investment goal and stick to it over years, you’ll probably be better off as a result. Frequently trading can take up a lot of your time, may not help your results and could also increase your costs.
Taxes are also a consideration, if you buy investments within an ISA, then you may not pay tax on the money you make from investing. However, in a general investment account your investment returns may be taxed, which can reduce your returns.
Basically, we think for most people low cost ETFs are a good idea if they include exposure to many different countries and parts of the economy. A similar thing is true of bonds, where owning exposure to different countries, companies and types of debt can also help manage risk.