Start investing for the first time
Rock bottom savings rates have prompted many people to consider investing for the first time, in the hope that they might generate returns that can keep pace with rising living costs.
If you are new to investing, there are several things you need to consider before you take the plunge.
Your attitude to risk
Investing involves risk, so there is the chance that you could get back less than you put in. If you aren’t comfortable accepting this risk, then it won’t be right for you. Some types of investments are riskier than others, so you’ll need to think about what sort of investor you are. For example, you might take a cautious approach, or you might be happy to accept a higher level of risk in return for potentially higher rewards. If you’re unsure which sort of investments might be suitable for you, you should seek professional financial advice.
How much do you want to invest?
Contrary to popular belief, you don’t need a big lump sum to start investing. You can begin with just a few pounds each month if you want to. Danny Cox, of independent financial advisers Hargreaves Lansdown, said: “Regular monthly savings are low cost and easy way to get into investments. You can invest from £25 a month, less than £1 a day. Stocks and shares individual savings accounts (ISAs) are a good place to start since they are tax-free, meaning you keep your profits away from the taxman.
“By drip-feeding your money into stock market ISAs, you will also take advantage of their downs as well as their ups. If you invest a fixed sum every month you will be able to buy more units when a fund’s value falls, providing the potential for greater profits when they have risen in value.”
If you’re considering investing, you’ll need to be prepared to think about when you’re likely to need your savings. You should only invest if you won’t need your money for at least five years, but preferably longer. That’s because stock markets can be volatile, so if they do take a dip and if you’re investing over a long-term period, your investments will hopefully have time to recover. As a general rule, the longer you invest for, the greater the potential returns.
First time investors can either invest in individual company shares or collective investment funds, such as open-ended investment companies (OEICs), unit trusts or investment trusts. These pool your money together with that of other investors and invest it in a wide range of different companies. Mr Cox said: “The main advantage of funds is they spread your risk and the fund manager makes the decisions for you.”