1/ Keep calm and carry on investing
Many investors enjoyed good returns in 2021 as stock markets continued their recovery after the Covid “flash-crash” of early 2020.
But markets don’t go up in straight lines, and investors will almost certainly be faced by uncertainty and volatility in 2022.
Ballooning inflation, interest rate hikes, further Covid waves — or something completely different — could all be triggers for a possible market slump in the coming year.
However, it’s important for long-term investors not to panic and sell up — this just creates a new challenge of timing when best to go back into the market.
Investors who sold up in the 2020 flash-crash would have had to jump straight back in or they’d have missed the rapid market bounceback that followed.
And switching to cash is unlikely to offer a rewarding alternative. Savings rates are at historic lows and far below the rate of inflation.
Even with further rate increases by the Bank of England, cash returns are set to remain unimpressive, especially in real terms.
Individuals investing for the longer term should therefore see market volatility as an opportunity to top up their portfolios at a potentially lower price, rather than a reason to seek out the “safety” of cash.
2/ Spread your risk
In an uncertain world, diversifying your investments — aka not having all your eggs in one basket — is an essential tool for reducing risk.
With a diversified portfolio, you’re not relying on just one share or investment doing well. And if an individual holding crashes, its impact is diluted.
One of the great benefits of ETFs, which often hold hundreds of individual shares or bonds, is they provide an easy way to diversify.
Investors looking to put new money into the stock market can also reduce the risk of getting their timing wrong by drip-feeding this cash over a period of time, whether on a monthly basis or in a series of lump sums.
Check out our Managed service for a diversified portfolio built for your risk level.
3/ Pay less to invest
Competition remains fierce in the investment industry, with commission-free dealing and lower fund fees now firmly established trends.
Lower costs mean you get to keep more of the gains your investments make, so why pay more than you need to?
ETFs in a range of investment sectors charge as little as 0.05% a year, a fraction of the charges of traditional unit trust funds.
And with our DIY investing service, there are ZERO account fees as well as NO dealing commissions — all you pay are ETF costs.
You can read more about investing costs here.
4/ Beat rising tax
With personal tax allowances due to be frozen until 2026 and dividend tax rates up 1.25% from April, ensure you take full advantage of investment tax breaks like ISAs.
It’s important to remember that ISAs aren’t just an income tax shelter — they can also be valuable for avoiding capital gains tax (CGT) on investment profits, particularly over time as markets rise.
The £20,000 annual ISA allowance means a couple who have yet to use their ISAs this tax year could invest £80,000 tax-free over coming months — a total of £40,000 before April, and then a further £40,000 as soon as the new tax year starts on April 6.
Check out our Stocks & Shares ISA, which has no account fees and no transfer fees!
5/ Get to know your investments better
The growing popularity of ESG (Environmental, Social and Governance) investment highlights how people increasingly care about which industries and companies their savings are supporting.
But the investment industry doesn’t always make it easy to get the full picture of holdings in managed funds and portfolios.
However, with our Portfolio Look-through feature you can see at a glance which companies, business sectors and regions your money is invested in, and their percentage weights.
Available to all InvestEngine customers, this powerful tool is free to use and gives you the breakdown across your InvestEngine portfolios, as well as for individual ETFs.
Just log in to your InvestEngine account and go to the Analytics tab on your dashboard. Or, if you’re not an InvestEngine customer yet, why not sign up today and get under the hood of your favourite ETFs!
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.