The last few years have seen savers in the UK take a real battering, with interest rates on savings accounts going only one way and that is down. Some banks and building societies are paying a pitiful 0.5% on savings. Even ISAs have fallen out of favour, despite their attractive tax-exempt status. So why are many of us thinking of investing, and how do you begin?
It isn’t surprising that desperate savers are looking for alternative ways of growing their nest eggs. And, many are turning to investing in stocks and shares for better returns. But if this is your intention, you must beware of the many sharks and pitfalls which lie in wait for unwary investors.
Read our guide for safe ways to invest your money.
Step 1 – Overhaul Your Budget
Before you even look to how much of your hard-earned cash you can commit to investing you should first get your finances in order. This means sorting out your incomings and outgoings and paying off critical debts. Only then can you see how much you have left to play with. This is important because the main thing you must keep in mind when it comes to investing is that the stock market can be volatile. Therefore, you must be prepared for any losses.
Step 2 – What Kind of Investor Are You?
We can’t emphasise enough that investing in stocks and shares, while it can promise exciting returns, can be a risky business and for this reason you must decide whether you can afford to risk any money or not, how much and for how long. Investing should be regarded as a long term strategy and not, despite the headlines, a quick route to easy riches.
What are Investments and Returns?
When you invest money anywhere you do so in the hope of making a profit. Investments can be shares in a company, property, fixed interest securities (which we know as bonds) or simply cash placed in a bank or building society.
Returns are the profits earned either from property rents, interest or dividends, or capital gains.
Risks of Investing
There’s no such thing as a ‘risk-free’ investment and you should be wary of adverts which promise high interest returns on no-risk investments as these are often scams or at the very least will return much less than promised.
Stock market investments carry risk in that share prices rise and fall which means that when you need to sell prices may be low and so will your expected profits. The advantage the stock market investments have is that they will usually beat inflation and be higher than bank interest rates.
If you plan to trust your investments to a financial manager then be aware that fees charged will reduce any returns you receive from your investments.
This is a way of spreading risk by investing in a number of different types of assets; some of which will be low risk like bank savings accounts and some higher risk like stocks and shares.
Take Professional Advice When Investing
If you have any spare money and you want to try investing talk to a trusted financial adviser first. Be honest about how much risk you are happy to take – this means deciding how much money you could afford to lose.