Putting your money to work with the aim of funding some of life's milestones – be it a house deposit, a wedding, or retirement – requires patience, commitment, and an understanding of some core concepts. 

There are a number of investment principles that can help you allocate your savings in line with your goals. Our investment team stands by the following seven principles: 

1. Set investment goals

Having financial objectives can help you decide how to invest. Plan to live for a long time, balance your long-term goals with your short-term objectives and stick to your plan, even during periods of market volatility. Seek financial guidance or advice if you need support in setting your goals.

2. Start early and be consistent to have the greatest potential for returns

The earlier you start investing, the more time your savings have to potentially benefit from returns. Time spent invested in financial markets is usually more beneficial than time spent trying to 'time' the market, as longevity in investing is often rewarded with the fruits of compound returns, the phenomenon of reinvested returns. Pound-cost averaging - essentially drip-feeding money into markets at regular intervals - can help to protect investors from market shocks.

3. Resist the lure of cash

Cash serves an important role and all investors should have easy access to cash as a buffer, helping to reduce the need to draw down from your investments. But beware the threat of inflation, which can erode the value of your savings if left in cash. 

4. Understand the trade-off between risk and reward

Higher returns can come with higher risk. To generate investment returns, you are going to need to get comfortable with volatility and embrace some form of risk, of which there are several types. Your risk appetite will depend on factors including your financial objectives and how close you are to personal milestones, such as buying a house or retiring. It's fine to adjust your risk appetite up or down, especially if your circumstances change, but avoid tinkering. 

5. Diversification matters

Don't put all your eggs in one basket. Investing in a range of asset classes and markets can help to shield your portfolio from market shocks, as well as capture performance across the market. Portfolios, from time to time, will need rebalancing to ensure that they are configured to meet the needs of the investor.

6. Keep your emotions in check

Human investors all experience emotions and psychological biases that influence how they make decisions. Be conscious of these mental factors, and keep your head during moments of turbulence, particularly when other investors do not. Make sure your investment decisions are influenced by reliable sources of information.

7. Make the most of your tax allowances

There are different types of tax that affect investors, which we explain later in this guide. Having a diverse range of investment products can help to maximise the various allowances on offer, so understanding how these tax rules work is important as they may influence which product you select.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. Pension, ISA, JISA and LISA eligibility rules apply. With LISAs, govt withdrawal charges may apply. 

Nutmeg does not provide tax advice. For personalised advice tailored to your specific situation please consult with a qualified tax adviser or financial planner. If you are unsure if a pension is right for you, please seek financial advice.

Nutmeg provides 'restricted advice', which means we will only make investment recommendations on the products and services that we offer.