10 simple tips for first-time investors

The investment map is changing and experts are divided on where opportunities lie. Some talk of Eastern promise in India, while others claim embattled Europe is the place to seek cheap stock with longterm potential.

Yet most countries are struggling with their own economic problems and every market has potential pitfalls; so to help you pick your way through the investment maze, here are 10 simple tips.

1. CONSIDER YOUR PASSIONS

It's wise to invest in an area of business you're truly interested in, so that you can put your enthusiasm and knowledge to good use. "If you have an interest in agriculture, for example, or if you're passionate about alternative energy, then you could invest in funds focusing on them," says Darius McDermott, managing director of Chelsea Financial Services.

You will enjoy researching a sector you're passionate about and can narrow down your stock and fund choices more easily using your understanding.

2. KNOW YOUR TIMESCALES

It's essential to ensure that whatever you choose to invest in fits your overall strategy and risk profile. So, if you're saving for retirement and have 25 years to go, say, you can afford to opt for riskier stocks and shares with greater long-term growth potential.

In contrast, if you have a five-year timescale with ambitions to use the money to buy a property, your choice is likely to be at the low-risk end of the scale, with a mixture of cash, bonds and equity income.

3. IF POSSIBLE, TAKE A LONG-TERM VIEW

The rollercoaster stockmarket ride over the past year should have reminded investors of the risks attached to picking shares or share-based funds. If you're not prepared to lose any money, the stockmarket may not be the right place for you - although by taking a longer view you're likely to do better there than in cash and bonds.

For example, if you invested £100 in the stockmarket 20 years ago this would be worth £258 today, compared to just £118 if you'd opted for cash.

"The key is that you have to be willing to leave your money invested for the long term - which means a minimum of five years," says Gavin Haynes, managing director at Whitechurch Securities.

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4. GLOBAL THEMES

One investment theme often trumpeted by asset managers these days is the shifting power balance from West to East, with Eastern economies set to become the new global titans.

To invest in this you could spread your risk by picking a fund spanning a range of emerging economies, such as the Allianz RCM BRIC Stars fund, which invests in Brazil, Russia, India and China.

Technology is another example of a popular worldwide investment theme, with a number of specialist funds to choose from, such as the Henderson Global Technology and AXA Framlington Global Technology funds.

For a more broad-based approach to technology investment, you could invest in a general US large cap fund – it's likely to hold giants such as Microsoft.

5 INVEST IN WHAT YOU UNDERSTAND

Make sure you understand the fund you choose, so check what it invests in and how. "If you don't understand anything then ask, and if you don't get a satisfactory answer, don't invest," says McDermott.

As an example, you could consider investing in a fund such as Schroder UK Alpha Plus that invests in large UK multinationals such as pharmaceuticals giant GlaxoSmithKline. Likewise, many global funds are invested in large companies that are constantly in the news or whose products you buy, such as Apple.

6. CHECK OUT THE FUND MANAGER

Before you decide where to put your money in difficult times, check out the fund manager's credentials and make sure you understand their performance, reputation, goals and style. If they've recently gone off the boil, then perhaps theirs isn't the fund for you. However, even the best fund managers will underperform from time to time.

"Tom Dobell, manager of the M&G Recovery fund didn't beat the FTSE All-Share for the first time in 10 years in 2011," says McDermott. "But he's a fantastic manager with an otherwise impeccable record, and the fund is still a strong buy in my view."

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7. DON'T FOLLOW FASHION

Following short-term trends and fads has often led to investors selecting the wrong investment at the wrong time. This was demonstrated by the misery of the dotcom crash back in 2000.

While many of the innovations that were promised at the peak of the technology bubble a decade ago are now available and are here to stay, the rush to invest in them then was disastrous for many investors. Take your time when deciding where to put your money - technology is back in favour but it is still a volatile, niche area so tread carefully.

8. BEWARE OF PAST PERFORMANCE

Past performance provides absolutely no indication of the returns you will achieve on a particular fund. While the fine print will often tell you this, many investors choose to ignore it and follow league tables when choosing where to park their cash.

"Markets are cyclical in nature and just because an asset class or market has been the best in the past, it doesn't mean it will provide the best future returns," says Haynes. Take Europe, for example. Its markets have performed poorly but they have the potential to thrive if a solution to the crisis is found. "Its companies are still in good shape," says McDermott.

9. MAKE REGULAR SAVINGS

Given the dramatic swings in markets, investors may be more comfortable spreading payments over the year or investing monthly to smooth the peaks and troughs. This smoothing effect is known as pound-cost averaging and helps reduce any fear that market volatility will wipe out gains.

It's a simple principle. If share prices are rising one month, your contribution will buy relatively few fund units. But then another month you buy at the bottom of the market when share prices are cheap, so that same contribution buys many more units. Over time, this tends to mean you pay less than the market average per unit.

10. SPREAD YOUR INVESTMENTS

Don't put all your eggs in one basket: it's a cliché but an important consideration when investing. Striking a balance of investments, rather than, for example, investing in one company or fund and relying on that one investment doing well for you, is likely to be rewarding over the long term.

For a balanced portfolio, it's a good idea to invest in more than one asset class. "Then if equities fall, for instance, bonds should buffer your portfolio," says McDermott.