At Dabbl, we want to make buying shares as accessible as we possibly can – for everyone. To help with this, we’re running a series of blog posts covering a wide range of topics which impact the world of business, finance and investing. These snapshots have been carefully crafted to cut through the jargon and highlight some of the most important facts to consider in each subject.
Three rules you might want to follow if you’re looking for investment success
It’s fair to say that the stock market has seen a degree of volatility since the start of the year. In January, the FTSE-100 – the index of the UK’s biggest shares – reached almost 7,800. Over the next three months, the index fell by almost 1,000 points, only to bounce back again and have recovered all of those losses by the end of last week. Price movements like this are certainly nothing like the erratic market behaviour of the credit crash of summer 2008 – or worse still ‘Black Monday’ back in 1987, but it’s worth remembering that there are a few simple rules which are always worth considering if you’re looking the build a successful investment portfolio in the long term.
Invest on a regular basis.
Share prices jump around driven by a myriad of factors every day. By investing small amounts on a regular basis, you can get into the market at an average price. Yes, if you invest in one big lump sum you might manage to pick up a bargain and buy at the bottom – but it’s just as likely that you’ll buy at the top. Big banks spend heavily on research and state of the art technology trying to pick off extra profits by timing the market – but they can also get it wrong.
Diversify your holdings
Investing in shares is a classic case of not having all your eggs in one basket. Last week, Carnival Cruise Line saw its share price drop by over 5% whereas miner Antofagasta’s shares are up more than 9%. Spreading your investments around a range of companies – and probably across a range of sectors – should offer a degree of protection when markets get a bit erratic.
Increase your investments every year
The cost of your commute to work, your mobile phone contract or the price of a round of drinks increases every year, so you should also increase the amount you invest on a regular basis. The chart below shows the effect of investing £100 a month or £1200 a year over twenty years. If you keep that monthly contribution constant, at the end of the period you will have invested £24,000. However, increase the amount by 10% each year and the total invested will have jumped to more than £68,000.
Investing should always be considered a long-term proposition so it’s good to be able to look beyond the short term bouts of volatility such as those we’ve seen in recent days. Whilst (sadly) no one can guarantee future fortunes, keeping in mind the three rules outlined above is at least one way of Dabbling your way to a nest-egg in the years ahead.