Since we have no control over the daily movements in the prices of stocks we own, it makes sense to focus a little more on the things we can influence. Especially if these can have a huge impact on our ability to build wealth and secure a more comfortable retirement.
Instead of fretting over your winners and losers this weekend, why not make a point of checking that you’re doing the following.
Keep an eye on costs
Arguably, far too little attention is paid to costs by investors and yet these are the one thing we can be completely sure of. This is particularly important if you choose to invest in actively-managed funds since, even if your chosen manager is able to beat the market consistently (and most don’t), any outperformance made may be cancelled out when fees are extracted.
That’s partly why investing in passive vehicles like index trackers and exchange-traded funds can make a lot of sense. They can’t outperform the markets they follow but the costs are so low (as little as 0.07% compared to managed funds that can charge 1-2%) they often generate a better outcome than their active equivalents after fees.
Another way of cutting costs is to take advantage of regular investing plans from brokers that invest your cash on roughly the same day every month for a relatively small charge compared to their usual buying fees.
It’s also worth checking whether your platform provider charges a flat or percentage-based annual fee for their services as the former can be the far cheaper option for those with large portfolios.
Save tax where you can
For the vast majority of private investors, it makes sense to hold your investments in a tax-efficient wrapper such as a Stocks and Shares ISA or Self Invested Personal Pension (SIPP). Fail to do this and you’re liable for tax on any capital gains you make and any income you receive.
In the 2019/20 tax year, it’s possible for one person to save a total of £60,000 if they hold both kinds of account. You’ll also get tax relief on cash paid into the latter. Thanks to the power of compounding, this can dramatically enhance your returns over time.
Invest according to risk
While you can’t decide what assets do, you can control your exposure to them. That’s why it’s vital to understand your risk tolerance, which will be determined by your personal circumstances, financial goals and how long you’re willing to stay in the market.
Generally-speaking, a young investor can afford to take on more risk to grow their wealth since they have more years ahead of them in which to smooth out returns. Someone approaching retirement, however, may be wise to dial down their exposure to equities and divert their wealth into less volatile assets.
Get a grip on yourself
One of the biggest contributors to success that’s very much within our control is the ability to manage our emotions. Unfortunately, it’s actually very easy to lose your cool when markets tank and sell out at the very time you should, in fact, be buying.
To avoid sabotaging your own progress, consider simply checking your portfolio less often. So long as your holdings are suitably diversified by sector and geography, any stress-fueled tampering can be kept to a minimum.
