Financial expert shares five investment tips to consider before setting up a stocks and shares ISA

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It has been estimated that many people in Scotland have saved on average £5,500 during the last 12 months as a result of reduced spending due to restrictions put in place to prevent the spread of coronavirus

With so many available investment options, it is sometimes difficult to choose the best one for your particular needs.

An Individual Savings Account (ISA), is one of the easiest ways to invest. It is a tax-efficient saving or investment account that allows you to put money into a wide range of investments, from individual stocks and shares to funds, bonds, and Exchange-Traded Fund (ETFs), and it is open for any UK resident who is aged over 18.

However, even if investing in stocks and shares with an ISA might seem easy, there is still the need for some advice, especially for new investors.

Dan Lane, Senior Analyst at the trading and investment app Freetrade, shares five top tips to follow before setting up a stocks and shares ISA, in order to make the most of your investments.

Tip 1: Invest in shares that reflect who you are

Your portfolio should mirror you. Start by thinking about how long you want to invest for, what your financial goals are and how choppy a ride you’re prepared for along the way. Putting these three factors down on paper will help you choose the assets to match and might even make you realise you need to compromise on one to meet the other.

Before you dive into stock selection, make sure the basic asset mix suits you. That means having a diverse blend of company shares, bonds and alternatives like precious metals, which can pass the leadership baton to each other over the years.

When it comes to shares, invest in what you know and what you’ve researched. It’s rare to find a consistently successful investor who doesn’t know their portfolio inside out or who doesn’t understand how their companies make money.

Tip 2: Keep risks low at the beginning

If you’re likely to worry if volatility strikes, set yourself up with assets lower down the risk scale when you start.

Tip 3: Focus on the long-term trends

Don’t get too caught up in the headlines and definitely don’t get tempted to mess about with your assets from quarter-to-quarter.

Like switching queues in the supermarket, sometimes the best thing to do is just stay put. Darting between assets is likely to throw your diversification off-kilter and can take you steadily further away from your initial plan.

Tip 4: Choose information carefully

Having more information doesn’t make you a better investor. All it does is increase the likelihood that you will fiddle with your portfolio either through fear, greed or boredom.

Keep up to date with stock markets but there’s a reason the best investors work on their ability to block out the noise and stick to their knitting.

The myth is the more active you are the better you will be.

Tip 5: Avoid sitting on cash

While it can be useful to have a bit of cash in your portfolio to take care of market dips, if your money is doing nothing it’s silently being eaten away by inflation. Investing can help to beat inflation, but only if it’s invested and not sitting idly in your portfolio.

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Anyone can be a stocks and shares investor

New investor Adam Mlamali has invested approximately £120,000 in the markets, £100,000 in general investment accounts as well as a maxed-out ISA investment of £20,000 since last October.

He is proof that even with little experience in investments, it is possible to obtain good results in the short term.

After attending several events of multilevel marketing (MLM) companies, Adam realised these weren’t the kind of activities that would fulfill his investment needs.

He said: “I knew I did not want to join an MLM and they seem to be an extremely unethical business practice with no sense of direction other than to recruit”.

What drew him to the stock market was his passion for business and economics and the concept of capital allocation, the idea that money invested in stocks gives the power to drive the company forward and benefit the world with products or services in an ethical way.

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Adam added: “For example if you like innovation you can invest in stocks which are innovative and choose to invest in autonomy or something that changes the world for the better”.

He had, in the beginning, a few online businesses with money to spare and he wanted something new in which he could work on.

Adam’s story is a successful case. Prior to investing in stocks, he had only had experience in trading  for roughly a year with financial instruments ranging from commodities such as silver and gold, indices such as the NASDAQ and forex.

His main advice for beginners is to understand the company from both a fundamental and a financial level before even considering investing in it.

He said it’s also important to understand the market in which the business operates in and realising that some markets can be cyclical, going through periods of expansion and recession. He is particularly focussed on sectors like electric vehicles, space, artificial intelligence and drones.

“I have profited from my investments. My ISA has had an overall return of 90% currently, it fluctuates heavily between the levels of 90-150%. In my general account I am up over 200%”, he said.

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