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Avoiding analysis paralysis

We live in a world of plentiful choice and rich data but when it comes to investing having too many options can be a bad thing. The options available can be baffling and spending time navigating that choice can cause investors to miss out on valuable opportunities. From the cost of securities, to past performance and provider there a hundreds if not thousands of options. At Moneyfarm we currently focus on exchange traded funds (ETFs) but even that market has been flooded with options. An investor cannot just choose an ETF, they need to look at a range of measures to ensure they choose the right one.

Here are 4 tips to avoid analysis paralysis when investing:

Have clear objectives

What are you trying to achieve with your investment? This should be the first thing you consider before starting to invest. Think about your goal and when you will need to access the money. This will give you a time horizon which will help you to narrow down the options to ensure the securities suit your needs.

Choose your fund type

The investment market is vast, at the start of an investment journey you need to narrow your choice as much as possible. Moneyfarm uses ETFs for two key reasons. They offer the same exposure to asset classes as mutual funds yet are more cost-effective, so provide better returns. And because they are traded like a stock, ETFs offer complete transparency on price dynamics.

Focus on a few data points

The wealth of data available to investors is incredible, you could spend hours or even days going through it all and still be none the wiser. Choose a few key data points so you can start to make a comparison. We select our ETFs rigorously according to:

  • Quality of ETF provider
  • Provider’s high level of total assets under management
  • Liquidity of ETF product
  • Tight bid/ask spreads
  • Low management fee

This ensures we both protect our investors capital and make their investment more efficient.

Outsource the analysis

Often the initial decision to invest is complicated enough, there is whole industry built to help investors navigate the asset management landscape. There are independent financial advisors, large asset managers, pension providers and digital wealth managers. All will provide varying levels of advice and many will offer a discretionary product which means the investment decisions are left to a team of experts. The main thing to consider is the cost of these options, this will be on top of the cost of each security and cost is the only thing you can control when investing to help maximise your returns. Make sure you do not take on too much cost as this will limit your chances of success.

At Moneyfarm we are constantly analysing the market and our investment committee meet regularly to ensure our portfolios suit the attitudes of our customers. The markets change so what might be the right asset in February could not be working well in September. All of our investors take a survey when they sign up with Moneyfarm, this survey is built on behavioural economics so we know how you would react to certain situations in the market. Your portfolio is designed with this in mind but our technology and team of professionals will make that choice for you.

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