Investing your money for the first time is a big step! It’s something you should take seriously and take some time to consider expert help and guidance.
Following the financial crisis and the continuing low interest rates on cash savings many have turned to the investment markets in the hope of achieving more rewarding growth and return on their money.
We have mentioned risk in previous blogs but it’s a very important part of investing. You need to be prepared that you could lose some, or even all of your savings. However, risk isn’t necessarily a bad thing and many times more risk could mean better returns.
Make sure you’re ready
It is crucial that before you invest you have accessed your finances, making sure you have necessary safeguards in place and understood the level of risk you are willing to take.
Making sure any debts you have are under control as any returns you receive on investments are likely to be outweighed by the interest payments on debt. You’d be better off reducing any debt as much as possible before investing.
Decide if you want advice
If you want personal recommendations it’s best to consider using a financial adviser. If you want to make your own decisions there are online fund supermarkets to use. Whichever route you decide to take make sure you consider the fees and charges because these can affect your potential returns.
In the investment world there is a saying: “Don’t put all your eggs in one basket”. Investing your money into a variety of different asset classes, such as cash, shares, bonds and property leads to a lower overall risk for your portfolio. Each of these types of investments behave differently in different market scenarios, so holding a well-diversified portfolio is smart investing.
Once invested, leave it alone
Many investments take time to grow and therefore if you continually tinker with them it can increase the charges you pay. Quarterly, half yearly or annual portfolio reviews are sensible but anything more could be overkill.
Think about Retirement
Many believe it is vital to start saving into a pension as early as possible. The likelihood of the state pension being enough to maintain your lifestyle in retirement is very low. With schemes such as workplace pensions and private pensions savers can benefit from employer contributions, tax relief and generous tax breaks.
Have you got savings?
Before you start investing and potentially risking your money you should consider whether you have got spare cash to fall back on if the worst should happen?
Some core savings are important for an emergency fund to cover unforeseen events.
When making financial decisions there are some important steps to consider before you do anything with your money.
Why are you looking to invest? Do you want to start building a retirement fund or are you approaching retirement age? Are you just looking to grow your money or are you looking for a regular income?
This is the next important step after deciding what your financial goals are. Knowing what you want to achieve can help you work out what sort of return you want on your investments, how long it will take and whether your goals are realistic.
You should consider your age and health as these factors can play an important part in reaching your goals within an expected time frame. For example if you only have short-term plans for investing you will want to stick to less risky investments as you might not have the time for any losses to recover.
You should take all other financial commitments into consideration before deciding how much you can afford to invest. Accessing your liabilities, such as debts, insurance payments, pension contributions and living costs should help you work out how much spare cash you have to invest.
We have cover Attitude to Risk in our Risk vs Reward blog. Understanding the risks you’ll be taking, especially the level of risk should be fundamental to your investment plans. Your time frame is likely to play a big part in the level of risk you should take, for example you might have a long time frame with plenty of cash to fall back and therefore if the markets took a hit your money would have time to recover before you wanted to access it.
If you decide to seek financial advice you will have a professional to discuss all the points raised above. Financial Advisers are experts in tailoring your investments exactly to your needs. See our blog on Financial Adviser vs Private Investing.
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