Many people miss out on the best returns through lack of investing knowledgei Investment plan. The ultimate investment plan depends heavily on how old you are
Investing is one of the best ways to make your money grow. Over time, the stock market has been the only place capital has consistently grown ahead of inflation.
Yet, many of us still do not know the best way to go about this. In our 20s and 30s we do not invest due to a lack of funds or a lack of knowledge.
In retirement, we become more cautious and avoid the best-returning investments. Many end up missing out on the best returns throughout their lives.
With the right plans, investing can be easy and can be done with only a small amount of savings. Telegraph Money gives 10 top tips for investors of all ages.
Isa or pension?
Those under the age of 40 should look at the Lifetime Isa as a starting point as it includes a 25pc Government bonus. First-time buyers can use it for a house deposit and retirement savings, although you will be charged a 25pc penalty if you withdraw the money for any other reason, apart from a terminal illness.
However, for higher-rate taxpayers (earning more than £50,270 per year) investing via a self-invested personal pension –also known as a Sipp – is often the best option thanks to the tax relief.
For those saving for young children, or grandchildren, a junior Isa is a logical option. Deciding which investment tools are right for your circumstances is crucial to long-term planning, as it will reduce the tax you pay in the future.
If you are young, take more risk
Those starting out should invest in the stock market and have broad exposure companies around the world
You can do this by investing in a tracker fund – which follows an index like the FTSE 100 or the MSCI World – or you can spend time researching active funds and buying one run by a manager you think can beat the index.
Investing in higher risk parts of the world, including emerging markets and private equity, could provide higher rewards.
Explore all options and understand the language
Whether you decide to invest in a tracker fund that follows the market, or want to back an active manager that you hope will beat the market, investors should look at all the options available to them before making a decision.
People can invest in specific themes, like renewable energy or water sanitation, or ethical funds, which direct your money towards “good” companies.
Use the Telegraph 25 as a starting point
While there are some fund picks within the series, the Telegraph 25, as well as the Telegraph 10 lists for growth, income and defensive funds, are a good source of funds and investment trusts for those unsure of where to start.
Be aware of behavioural tendencies
Do your homework on what you are investing in. Planning your finances so you know how much you can invest, and how regularly, are good practices to get into.
Avoid anything that seems too good to be true and being patient with your investments is also important.
Take less risk if you need the money soon
The length of the period you are investing for is important as it directly translates into how much risk you can afford.
Investing for a short period in risky assets is dangerous as there is a higher probability of losing all the money. If you need the money soon, keep it in cash or find low risk investments such as Premium Bonds.
Know your financial goals
New parents should be naturally more cautious with their money, as there could be unexpected expenditures associated with a growing family.
Taking less risk to make sure the money is secure, at least for the first few years, might be advisable, particularly if you are already unable to save much extra from your earnings.
Always have one eye on retirement
Although the advice is to start saving into a pension from a young age, most of the time we do not start saving until our 40s. But the power of compounding returns means the more you can save early, the bigger the reward later in life.
Do not become too cautious at retirement
Someone in their 50s or 60s may live another 30 or 40 years, yet many around this time decide to take less risk as their pot grows larger and they get closer to retirement
But it is worth remembering how long the savings have to last you. Diversification – buying lots of different assets to reduce risk – is a good idea, but the main bulk of your portfolio should continue to be invested in assets that can beat inflation.
Enjoy yourself in your retirement
While investing might be something you are looking at, remember to enjoy the money you have worked hard to earn.
The Institute for Fiscal Studies, a think tank, found on average that people draw down just 31pc of their wealth between age 70 and 90, a rate of about 1pc a year.