Braving an Investment

The fragile state of the global economy is resulting in even seasoned investors being reluctant to part with their cash. Nevertheless, there is still money to be made on the financial markets for the cautious first-timer. It’s just a matter of knowing where to find it.

Safety First

Those new to the world of investing should minimise the risk to their money wherever possible, even if it means they have to settle for lower rates of return. Examples of relatively safe investments include the Saga five-year fixed-rate saver, which guarantees a fixed return rate of 4.65% AER until 2016. Investing in government debt is a form of IOU that the government has up to 50 years to pay back. Known as gilts, these are considered to be safer than investing in corporate bonds. While it’s possible to buy gilts directly from the Government’s Debt Management Office, most people are exposed to them through funds such as M&G’s index-linked gilt fund.

Avoid Panic

Investing is a long-term game that will inevitably see the investor having to ride out peaks and troughs in the market. Panicking at the first sign of change is the surest way to lose money. The investment director at Fidelity International, Tom Stevenson, says that market volatility is a test of investors’ ability to keep their heads while others are losing theirs. He says that the key to success is ‘to focus on long-term investment goals and remain calm’.

Companies with Continuity

There are some companies that manufacture products consumers continue to demand regardless of the prevailing economic situation. Examples include pharmaceutical manufacturers, utility companies, and tobacco producers. These are known as defensive investments, in that they will reliably produce a dividend payment.

Tools

Nobody can be expected to constantly monitor the intricacies of the market. Investing, like any other trade, has its own tools that make the job easier. For example, the APT models provided by http://www.sungard.com/apt/learnmore help market watchers understand the dynamics of risk and allow for asset allocation, performance analysis and risk decomposition of their investments.

Investing Lumps Sums

Over the long term, investing a lump sum is better than making small regular investments. According to a study by the Association of Investment Companies, over the past decade a £6,000 investment in a standard investment trust would have reached £11,855, while a £50 per month investment would have grown to £10,057. Annabel Brodie-Smith, of the AIC, says that, because they are invested for longer, lump-sum investments benefit more from any stock-market gains.