Take a fresh approach to managing your money in 2016

Let's be honest; how many of us will really join a gym, cut back on junk food and run round the park every weekend? A much better and easier New Year's Resolution is to have a proactive approach to saving and investing. 

Getting into a regular routine of putting some of your hard earned money aside is straightforward. Why not set up a direct debit and start feeding cash into your share dealing account or self-invested personal pension? 

Making 2016 the start of your journey to building up a fantastic investment portfolio could prove the best decision you've ever made. It could be your ticket to a healthier and wealthier future. 

It is essential to have a plan before you put your money to work. Here are six steps to making you a better investor.

1. What are your goals? Review what you want to achieve with your money. Are you saving for retirement, a deposit for a house, university fees for your children or a combination of things? How much do you expect this to cost and how long do you have to achieve it? Decide which are non-negotiable and which you may be able to live without. Even savers who are part way through an investing programme should review their goals from time to time.

2. How much risk are you able to take? Your investment time horizon and expected future earnings are both important when deciding how much risk to take. It would be unwise for a saver approaching retirement to risk losing everything for a little bit of extra income in the future. Those saving for longer term targets may be able to invest more of their assets in riskier products like equities.

3. What’s the most attractive way to invest? Individual Savings Accounts (ISAs) are a good way to save and so are products like pensions, either self-invested (SIPPs) or direct through a pension product provider. Each has different features and choosing the right ones will dramatically improve your chances of hitting your goals. Fee differences are another important consideration which can have a big impact on returns over time. Try and work out which are the best options based on how you expect to invest.

4. Should I go for funds or individual stocks? Your decision is down to personal taste and risk appetite and there is merit in putting both into your portfolio. Funds provide diversification to an investment portfolio. This can help to cushion the impact if one of the underlying holdings in the fund goes through a bad patch. You will have to pay a fee to a fund manager for their services. Individual stocks provide a more streamlined focus on one particular area of the market. A contract win or acquisition can result in big share price uplift, although this is not guaranteed. The benefit to your wealth would be diluted if that company was one of several holdings in an investment fund. The risks are amplified if you hold an individual stock. Imagine if that company goes through a difficult period of trading and its share price falls. You don’t get any diversification benefits that come with a fund to cushion any monetary loss.

5. Don’t go all in. Anyone transferring a lump sum into an investment account might benefit from cost averaging, rather than investing it into the markets all at once. Instead of investing the whole amount on day one, cost averaging involves feeding the funds into the market gradually, either on a monthly or quarterly basis. Regular monthly savings plans can also provide the benefits of pound cost averaging. This helps you to buy more shares when the market falls and fewer when it rises.

6. Review your progress. Revisit your plan and progress every six or 12 months to make sure you’re on track. As investments move up and down, the proportion of your investments in shares, bonds, and other assets will change. If this is the case and you want to keep the original mix, consider rebalancing the portfolio through buying and selling the assets which have risen and fallen.