How to be a good investor: 3 questions you asked our experts

UNCERTAINTY comes part and parcel with investing, and this is especially true of 2023. In this landscape, it makes sense to seek the guidance of experts, so our latest webinar could not have come at a better time.

The ‘how to be a good investor’ webinar was hosted by Ed Monk, retirement expert, in conversation with Tom Stevenson, investment director. Together they delved into our new principles for good investing material and answered some of your questions.

Here are three pertinent questions they explored:

1. With interest rates around 6% for fixed term savings, over two years - is it wiser to save risk free in cash, rather than invest in shares and bonds?

Tom said that it’s a big question and there isn’t a simple answer.

“Until very recently where interest rates rose to the levels which were described in the question, we didn’t have a choice as you couldn’t earn very much money on risk free investments. The fantastic situation that we find ourselves in now is that that we have a choice.” said Tom.

One way to take advantage of this is to invest in cash-like investments.

Our Select 50 features one money market fund - sometimes called a cash fund - the Legal & General Cash Trust. Outside the Select 50, we also offer the Fidelity Cash Fund and the BlackRock Cash Fund.

Tom said these funds are paying very decent returns. While they’re not completely risk free, the risks are negligible.

But there are some restrictions with cash and cash-like investments.

“Even if you’re earning 5% on your money in a money market fund, all you’re doing is keeping pace with inflation. If you want to get ahead of inflation, you need to take more of a risk,” said Tom.

Ed said that ultimately, it does come down to what suits an individual.

“Some people will look at the cash returns on offer and think if I can get 5% or 6%, that might be all I need to make all my financial plans work. And it’s hard to argue with that,” said Ed.

But the reality is that most people probably would have lost on the stock market last year.

“You may think you want to get back into cash but if you look at the stock market this year, it’s done much better than cash. And so, you need to be careful not to abandon risk assets when they have a dive because they tend to recover quickly, just as they can fall quickly,” said Ed.

You can avoid common investing mistakes by knowing what you’re up against.

Learn more about managing risk.

2. How often should I balance and rebalance a portfolio?

Although it’s important to keep an eye on your portfolio, Tom said you shouldn’t check it too often.

“There is a risk that people fixate or sort of hyper focus on their portfolio. Maybe they’re watching what’s going on in the news and they’re watching the ups and downs [of the markets] and that probably leads you to make unwise decisions,” said Tom.

He said it’s best to set a strategy and then revisit it infrequently.

“You can check in with your portfolio once a year and ask yourself - is this still working for me? Does it still make sense? Is it in line with my aspirations? Does it align with my risk appetite?”, added Tom.

If you happen to change your asset allocation over this period, it’s important to not cut it off too soon. For example, if the stock market performs well and your strategy includes 75% in shares and you increase your allocation to 85%, you may want to adjust that back to your original target.

“Another principle of investing is to run your profits. And if something is doing well, you don’t want to cut it off at the legs, while it’s still performing well. Again, it’s a balance and you shouldn’t do it too frequently,” said Tom.

You can reduce the risk of trying to time the markets by investing regularly.

Learn more about investing regularly.

3. Which should I do first - my ISA or my pension?

“Good question. The answer is to probably prioritise both, as they offer good benefits. Firstly, they have different tax treatments. Secondly, they both offer generous allowances, so ensure you make the most of them,” said Tom.

He highlights the advantages of workplace pensions, given that they are likely to attract contributions from your employer.

What you really don't want to do, is pay more tax than you need. Both an ISA and a SIPP can help you with that.

“You can set up an ISA in five minutes - that’s quick and easy. A pension - depending on what type of pension you’re choosing - may require a bit more effort. This is more relevant for younger people, but I would say get the admin done for the pension as soon as you can,” said Ed.

Tom said that there’s a difference between an ISA and a pension, in terms of their flexibility.

“You are locked into a pension until the age of 55, now it’s getting progressively higher. With an ISA, you can dip in and out of it. That provides you with a bit of flexibility which is a good thing.”

You don’t need to pay more tax than you need to.

Learn more about tax efficiency.

Watch the how to be a good investor webinar recording below.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.