The Seven Principles of Investing & How this Affects your Investment Income in Spain
There are many adages and words of wisdom regarding investing & investment income in Spain and elsewhere, there are also many bar-stool friends only too eager to impart their “expert” view of the “inversion del dia” (Investment of the Day) to the unwary, we all know at least one “Bar Stool Dave” as I call them.
As far as investment “gurus” are concerned the most reliable, trustworthy and accurate “guru” is history. What history has taught us is seven reliable principles of investing as follows:
1. Have a plan and stick to it
A sound financial plan can mean the difference between living in hope and achieving your long-term capital growth and goals for investment income in Spain. It makes you focus on long-term strategies rather than being spooked by short-term distractions. Staying on track with the help of a qualified, professional, independent financial adviser is key to ensure that adjustments can be made where necessary around taxation and asset allocation.
2. Do not keep all your eggs in one basket
Ok, so it’s an old one, but sometimes the old ones really are the best. Diversification of your investments across different world regions and varying asset types enables you to be less exposed to one region’s problems. For example, the volatility in the EU and the US caused by BREXIT and TRUMP had very little effect on the emerging markets of the world. Gold has often acted as a stabilising influence in portfolios.
3. Always consider your investments as a whole
One wilting plant in your garden does not mean the rest of the garden is not blooming. Similarly, when one asset class is underperforming, other asset classes in a properly diversified portfolio may balance out the fall and maintain your returns and investment income in Spain. Remember this is a long-term plan, focusing on the short-term will only lead to undue worry. A well designed financial plan will also allow for portfolio re-balancing to ensure all is kept in proportion.
4. It is not “timing the market” that counts, it is “time in the market”
I have long since forgotten who originally coined this phrase, but it remains the most widely miss-understood principle of investment. Many people believe that knowing when to buy and when to sell is the secret of investment success, either for growth of capital or steady investment income. In reality, nobody knows when the market will rise and fall, and certainly nobody can predict when the price has bottomed out so they can buy, nor when it has peaked and it is time to sell. Trying to do this would be hugely stressful and ultimately, in the majority of cases, unsuccessful.
The proven approach is to use time to your advantage, the sooner you start to invest and the longer you invest, the more likely you are to have healthy returns regardless of short-term effects like BREXIT.
Time in the market is particularly relevant to maintaining a regular investment income in Spain.
5. No risk, no reward & reduced investment income
In periods of market volatility, the temptation to put all your money into cash in the bank is almost overwhelming. A safe bet you may think. I have a number of Expat clients who came to me with this mind-set initially. However, you may wish to consider the saying:
“a ship is safe in the harbour, but that is not what ships are for”.
Low risk investing generally means low or non-existent returns and limited investment income. You do of course need to consider keeping at least some of your money as cash to cope with emergencies. But for longer term plans this needs to be balanced with other investments in differing asset classes and regions offering higher potential returns in the long-term.
6. By investing regularly, you generally get better results
Years of research and the proof of history has shown that investors tend to jump onto a rising market too late. In contrast to this panic sets in very quickly in a falling market with investors bailing out or not investing further as the markets continue to fall. This means that very few investors buy at the lowest prices or sell at the highest as they have inevitably miss-timed the market (see principle 4). Far better to focus on the long-term and continue investing regularly whether the market is rising or falling disregarding short-term volatility in favour of long-term results. I have a rising number of Yacht Crew heeding this advice and investing regularly.
7. Seek qualified, regulated independent financial advice
OK, I admit I have a vested interest in this principle, but it is still valid none-the-less. The needs of every investor are different and even considering principles 1-6, there is no substitute for a tailor-made plan specific to your circumstances and, very importantly, your appetite for risk or lack of it. My role as an Independent Financial Adviser is to get to know you and your attitudes towards risk and investment loss vs the potential rewards and to ensure a reliable investment income. Then to guide you through the myriad of investment opportunities available to achieve your goals, at the same time making sure your investments are held as tax efficiently as possible for example via QROPS or Spanish Tax Compliant Bonds. Good advice can help take the emotion out of investing and lead to a more pragmatic and planned approach to the long-term.
Investing in a good Financial Adviser may be the best investment you ever make. Get in touch today! and secure your future investment income in Spain.
