Interested in investing? A good plan will help you get started

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Investing any extra money can be a wise way to prepare for the future. A clear and concrete investment plan can help you get started. See the tips from Hannu Nummiaro, economist at LähiTapiola!

Clarify your investment objectives

First, think about what you want to achieve with investing. For example, is it to build up a rainy day buffer, a holiday trip or savings for retirement? By clarifying your goals and considering the time frame for investing, you can work out what amount of money is right for you to invest regularly. For example, it could be 50 € or 100 € a month.

An essential part of starting to invest is budgeting for your daily life. Go through your expenses in order of importance. What are the must-haves? Are there any expenses that you could cut back on or do without altogether? This will help you work out an appropriate amount to invest.

In investing, time is money, so the earlier you start, the better. As well as accumulating savings, the earlier you start, the longer your investments will earn important interest on interest.

Investment horizon and risk tolerance

The investment objective determines the so-called investment horizon. For example, a buffer for a rainy day may wait years before being used. It is then worth investing to ensure that the purchasing power of the savings is maintained. The target period for retirement savings is also often quite long, so that you may have the courage to invest with a higher return.

On the other hand, funds may be needed as early as next week. In this case, it is advisable to keep the risk level of investments moderate.

Risk-taking capacity, in turn, consists of two factors:

1. The investment horizon is the basis of risk-taking capacity. Over the longer term, even large intermittent market declines have time to recover.
2. The second factor influencing risk tolerance is one’s own peace of mind. Worrying about losses should not disturb your sleep. Peace of mind often comes from experience and an understanding of investing. For example, you can start with a lower risk and increase it as you gain more experience and knowledge.

You can adjust the appropriate level of risk by allocating your savings to different types of investments. For households, the main types of investment are shares, fixed income, housing and other real estate, and forest. These all have different return and risk characteristics.

You can manage risk by diversifying your investments across different types and types of assets. Composite funds allow you to find a diversified investment that is suitable for everyone, easy to access and ready to diversify.

Market risk refers to the daily fluctuations in the value of investments. Liquidity risk refers to the convertibility of investments into cash. For example, units in mixed funds are easy to sell, whereas real estate has a much longer sales period.

There is a wide range of investment opportunities

Risk and expected return go hand in hand. Equity investments with higher risk can be more deeply leveraged in a down market. On the other hand, they also rise more strongly and ultimately reap better returns. Current accounts, on the other hand, do not yield much, so when prices rise, the purchasing power of money decreases.

The purchasing power of money can be preserved by shifting from accounts to investment assets, with returns increasing assets at least at the same rate as inflation increases the price of the consumer basket.

Investing can be done through funds or direct investment. In the worst case, a single asset can lose all its value, but funds diversify investments across a range of assets. Funds are therefore an easy way to invest and there is a fund to suit everyone.

Require transparency and remember taxes

Always require transparency of investment-related expenses. In some cases, for additional fees, you can get convenience, a gateway to otherwise inaccessible investments for small investors, and excess returns relative to a benchmark index. Ultimately, however, it is the net return, or the return after expenses, that matters.

Remember that profits are also subject to taxes. As a general rule, investment gains are taxed as capital gains. Within funds and investment insurance, no tax is paid on gains, but only when the investment is disposed of.

Perseverance and patience

Then you can relax. Buy and forget is a good method of investment for ordinary households. Take just enough risk to stay strong even in weak moments. With the right risk tolerance, you won’t end up selling at the bottom and missing the up days.

Those looking for a more dynamic investment can split the portfolio into a larger buy and forget section and a smaller active trading section.

Realised returns, especially in the short term, may differ from your expectations of returns. Expectations usually refer to long-term returns.

By investing for the long term, you earn interest on interest: returns on past returns start to accumulate wealth at an accelerating rate. If you dream of financial freedom, start investing as young as possible.

What does an investment plan for Finns include?

Many Finns spend time each month planning and implementing their investments, yet more than 60% say they invest without an investment plan.

More than half of those who have an investment plan have written down their choice between funds and indirect investments, as well as the amount they invest per month or per year. The investment plan of the average monthly saver can, in its simplest form, contain just these points, i.e. an amount that suits their household and a fund that matches their risk tolerance.

Read more about investing on the website of LähiTapiola >>

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Also remember the insurances included in your YTK Worklife membership

As a member of YTK Worklife, you have access to comprehensive leisure accident insurance provided by LähiTapiola, as well as professional liability insurance and legal expenses insurance.

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