Six simple steps for wiser investing - and a better chance of higher returns - Simon Lambert

Simon Lambert a columnist for Daily mail writes about wiser investing. An idea  that I have garnered from investors he has "spoken to - or read - whose wisdom seems to shine the brightest."

1. Spend less money – invest the bulk of what you save and think long-term

In an increasingly have and have-not world there’s a danger in the simple suggestion to spend less money. There are many people in modern-day Britain for whom spending less in not an option – they struggle to actually have enough to cover the essentials.

I wouldn’t seek to tell them to spend less from my position of comfortable financial privilege. For the purposes of this though, I will assume that those reading an article titled Six simple steps to wiser investing have some money to spare.

Spending less money doesn’t mean forgoing all fun. Life is too short not to enjoy yourself. My personal theory is that I am unlikely to spend my final days fondly remembering that snowboarding trip I didn’t go on so that I could put some more in my pension.

Just make sure that your discretionary spending counts. Be judicious and sparing. Buying good stuff helps here. 

2. Take matters out of your hands – never underestimate the power of regular monthly direct debit investing

A regular monthly payment or direct debit out of your account tends to be a far more reliable investing companion that your best intentions to move the money yourself.

The latter opens up a host of opportunities for forgetting, diverting the money elsewhere, or investing it in the wrong place.

It’s all too tempting to invest too heavily in the thing that’s done well and is now expensive and too lightly in the thing that’s done badly and is now cheap. This is fine if you are employing a momentum investing strategy, but most people aren’t.

3. Asset allocate – don’t doze off here, this is potentially the most important thing you’ll do

Asset allocation. There is possibly no phrase in mainstream investing more likely to send people to sleep than asset allocation. 

At the simplest level it involves how much money you put into shares, bonds and cash. The idea is that spreading your investments across these main asset classes helps protect you when things do badly.

Shares deliver the best returns over time but are at the greatest risk of a big fall; bonds are traditionally less volatile but deliver lower long-term returns; cash is safe but low return.

4. Invest in the broadest and cheapest tracker fund

The man judged to be the world’s greatest investor, Warren Buffett, says you should avoid trying to pick winners. Instead of trying to find a great share or fund, Buffett argued most people should opt for a simple low-cost index tracker in his annual letter to investors last year.

'My money, I should add, is where my mouth is,' he said, before describing the investing instructions left in his will for a trust for his wife.

'My advice to the trustee could not be more simple: Put 10 per cent of the cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)'

In suggesting this Buffett echoed the words of his mentor Benjamin Graham.  He advocated that most investors should take a passive approach and buy every company in the index.

 

5. If you disagree with step number 4, be more critical of what you choose to back

If I’m going to be entirely honest, the theory in point number 4 doesn’t sound like much fun. 

It’s a great easy option and I fully understand why long-term it is probably the sensible course of action.

Yet, I am interested in investing and the world of funds, shares, bonds and markets. This means that I want to look into things that I think will do well and am willing to devote some time and effort to researching them. I am also willing to take on the chin any losses such an approach incurs

6. Read more books and considered thinking on investment

One of the pleasures of the internet is that is has put the greatest library the world has ever seen on our desk tops, on our sofas and in our pockets. It has not only never been easier to find interesting things to read online, but it has also never been easier to track down a book.

There are lots of very good books written about investing – more than most people will ever get close to reading. A substantial number of them are entertaining reads. Track down some and read them, absorb the contents and question them. 

 

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