At a glance the world of investing can appear daunting without knowing where to start. Keeping in mind these key pieces of advice before making any commitments can make all the difference between a rash decision and making financial plans at your own comfort.
Investments are about yielding a profitable return from something you buy or put your money into. The most common ‘asset classes’ include:
- Shares – when you buy a stake in a company
- Property – when you invest in a commercial or residential building
- Cash – when you put your savings into a bank account
- Bonds – when you loan money in the form of fixed interest securities to a company or government
Know When to Start
The first question of investing is perhaps when you can or when you should. If you have a rainy day fund that allows you to meet your cost of living in the longer term, this could be a good time to invest some of your nest egg.
If you have any outstanding debts, especially with a high interest rate, we would recommend making these a priority before investing.
Know When to Save or Invest
Before making any decisions it’s wise to identify your need and what you hope to achieve by making an investment. One thing to consider when drawing up your list of pros and cons is whether you have a long term or short term goal.
With time on your side, any potential increased returns on investments in the likes of stocks, shares or property will be able to grow. If, for example, you’re saving for a pension fund that’s decades away over the hill, investments will mean a better chance of beating inflation and you may ignore short term falls, which would be no good when you’re looking for a shorter term solution.
For plans such as buying a new car, or even a house if you’re a first-time buyer, saving with Cash ISAs may be your best option.
Work Out The Risk
Once you’ve decided the aforementioned shorter term needs and long term financial aims, drawing up an investment plan can help to pinpoint the best way to proceed. One of the many things to consider when investing is the level of risk you can take.
The likes of Cash ISAs and other low-risk investments are a good starting point for beginners. According to Moneyfacts, the average long-term fixed cash ISA pays just one per cent interest.
On the other hand, investing is one thing but gambling your money on an unpredictable market is another. Avoid like the plague any high-risk products when you don’t have a full picture of the risks involved. Making an investment plan is a way of working out how much risk you can take.
Whereas you may see a better return by accepting a greater risk, finding a way to balance the risk and return may come down to how you spread your money across different types of investments; in other words, diversifying.
Diversifying can also mean not putting all of your eggs in one basket. In other words, you don’t want to put all of your money into one investment and lose it all if something should happen to that company, for example.
Decide How Invested You Want to be in Your Investments
The amount of time and attention you put into investing is entirely down to you. This can be a full-time job or a once in a while affair. For a hands-on approach involving higher risk and decision-making, buying individual shares may be for you. If you don’t have the time or a lot of spare money to work with investment funds may be more appealing.
To ensure that you are fully-informed on all aspects of investments, financial advice is essential.
Adroit Financial Planning are experts when it comes to investment planning and can provide all the necessary advice and assistance to ensure the maximum growth of your finances.
For a consultation please contact our experts online or on 0800 884 0006 for any investment advice.
Neil Jefferies, Head of Financial Planning at Adroit Financial Planning.