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Hewison Insights

Six fundamental principles for investing

Caleb Ludlow
Senior Associate Adviser
3 Apr 2024

Investing is a powerful tool for achieving financial goals, whether it’s securing a comfortable retirement, funding a child’s education, or attaining financial independence. Despite its perceived complexity, investing can be simplified when guided by fundamental principles. These six principles resonate deeply with our approach at Hewison Private Wealth.

1. Establish Clear Financial Goals

The journey to financial success begins with defining clear and realistic objectives, followed by crafting a plan to attain them. Research suggests that investors with well-defined financial plans exhibit better saving habits and are more likely to achieve their goals. Regularly reviewing and adjusting your plan (if required) ensures alignment with evolving life circumstances.

2. Get your investment structures right from the start

Choosing the right investment structure is paramount. Whether individual, partnership, company, or trust, each structure carries implications for long-term financial outcomes. Take the time to explore various options to maximise benefits and mitigate potential pitfalls. Correctly setting up investment structures from the outset can yield substantial advantages while errors can be costly to rectify. We would strongly encourage a conversation with a professional who can tailor recommendations for structures to your specific circumstances, as they aren’t all relevant to every person.

3. Don’t try to time the market – start investing now

Time is a critical factor in wealth accumulation. Starting early allows compounding to amplify returns over time. Markets are unpredictable and volatile in the short term. If you choose not to invest due to news or intuition, you may be leaving money on the table. Purchase good quality assets and be willing to ride any short-term pain for the long-term benefits.

Like planting trees, the best time to invest was yesterday; the next best time is today.

4. Embrace Diversification

Diversifying investments across various asset classes mitigates risk and enhances portfolio resilience. By spreading investments across stocks, property, fixed income assets and cash, investors can capture growth opportunities while reducing overall volatility. Tailoring asset allocation to individual risk tolerance and time horizon optimises portfolio performance.

Diversification also assists with protecting the ‘downside’. While losses are inevitable, safeguarding against substantial downturns is crucial for long-term financial health. Diversification, including defensive assets like government bonds, shields portfolios during market downturns. Protection against significant losses is integral to preserving wealth. You never want to be caught holding all your eggs in one basket.

5. Implement consistent portfolio rebalancing

Regularly rebalancing portfolios ensures alignment with predefined risk tolerances. As asset values fluctuate, maintaining the desired asset allocation prevents overexposure to risk. Disciplined rebalancing is essential for portfolio maintenance and should be conducted at regular intervals. By implementing consistent rebalancing, investors can lock in profits during market upswings and capitalise on opportunities to bolster exposure to growth assets during market downturns.

6. Tune Out Market Noise

Market fluctuations and media headlines can induce anxiety and prompt impulsive decisions. Staying focused on long-term goals and ignoring short-term noise is crucial for investment success. Historical market trends demonstrate the importance of patience in achieving financial objectives.

Incorporating these six principles into investment strategies lays the foundation for long-term success. By adhering to these fundamentals, investors can navigate the complexities of the market with confidence and resilience. Contact us today and we can show you how we put these fundamental principles in place to achieve long-term investing success for our clients.