Investing for the future. How do investments work? And where to even start?
Investing for the first time can feel like a major leap. Especially when you’ve inherited a large sum or worked SO hard to earn it, you really want to make the right decision.
You want to make the most of your money. But the options look completely overwhelming. How do you know if you’re even ready to invest?
The value of investments and income from them can go down.
You may not get back the original amount invested.
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Are you ready to invest?
There’s an element of risk with any investment, so it helps to have a few things in place first.
How do you feel about taking a risk with your hard-earned cash? You don’t need to be afraid of it - just prepared for the fact that with investing, you could lose some or all of your money, depending on the risk you are prepared to take.
Understanding the risks
If you have a good long time frame and plenty of spare cash to fall back on, it’s probably doesn’t feel so much of a risk. But if the market not performing as you’d like would lead to endless sleepless nights, it’s probably worth going for something less risky.
Do you have debt?
It’s sensible to pay off any debt before you start investing, or at least get your debt down to a manageable amount. This is because the interest you’re paying on your debt could be more than the payments you could receive from your investments.
How much can you realistically afford to invest? Assess all your incomings and outgoings in detail & make sure you have the spare money to put aside. If you know you will need that money within the next five years, again it’s probably not right for you.
What do you want to achieve?
Set a clear goal for your investments. Do you just want a regular income? Or are you looking for a lump sum further down the road? This will help inform your decision about how much you need to invest, over what time frame and how much of a risk you’ll need to take.
If it’s a short-term goal (less than 5 years), you may want to stick to savings, because if your investments fall in value they may not return what you need in a short period of time.
If it’s a medium to long-term goal (5 to 10 years +), then investing is more appropriate. But it’s worth thinking about your age and health to make sure that if a longer-term investment falls in value, you still have the means to earn to build it back up again.
Regular income vs lump sum
A lump sum is investing all your money in one go. So if you’re comfortable with risk & know what you want to invest in, a lump sum is the way to go.
For example, you could invest £10,000 on the stock market at once - whether in bonds, shares or units in a trust. They’re bought at the same price and you benefit from any price rises straightaway.
The downside is that if whatever you have invested in goes down, then all your money will too. This is where long term investing can work as it gives the market time to recover. So you need to keep a close, regular eye on the markets.
If you’re more cautious and want to see a regular return, then regular savings is the way to go – otherwise known as ‘pound cost averaging’.
This is where you invest a set amount each month, into your chosen shares, over a period of time.
If the share price goes down one month, you’ll be able to buy more shares for your money. So by the end of the time period, you could end up with more shares than if you had put a lump sum in.
Also, if the share price drops, ONLY the money you have in at that time will be affected - rather than the whole lump sum. The only downside is that if the share price continues to rise over time, you’ll not benefit as much because you won’t have all of your money invested at any one time.
Prepare for the unforeseen
Make sure that your income is protected before you invest. It’s worth ensuring that if you couldn’t work for an extended period of time, you and your family will still be able to pay the bills. As a general rule, it makes sense to have at least three months of savings to fall back on as an emergency fund.
Think about retirement
It’s worth thinking about a pension before you invest. Pensions benefit from employer contributions and tax breaks, which are much less risky than investments for your retirement. If you already have a pension, you can think about investing any spare cash you have to boost your pension once you retire.
So…are you ready to invest?
Seek financial advice
There are SO many investment options that it’s always worth talking to a professional who knows the market and can advise you on which option/s will suit you best.
Our award-winning all-female team of advisers can help you get a clear picture of how to invest, what to invest & the best way of doing that, so you feel completely confident in your investment decisions.
To get started now, just leave your details & we’ll be in touch to talk it all through!
This notice cannot disclose all the risks associated with the products we make available to you. You should not invest in or deal in any financial product unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that it is suitable for you in the light of your circumstances and financial position. Different investment products have varied levels of exposure to risks and to different combinations of risks.
Our disclaimers are not intended to be fully inclusive of all relevant risks; we would strongly encourage to you ensure that you have read all relevant literature, and that you are comfortable that you understand all of the associated risks relating to an investment, before you decide whether or not to purchase it. Should you be in any doubt as to the risks involved, or to the suitability of a particular investment, you should seek professional financial advice.
Please note that investment values can go down as well as up and past performance is no indication of future performance.