Important information: Please be aware that the value of investments can go down as well as up, and so you may get back less than you invest. The information in this article is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Tax treatment depends on individual circumstances and all tax rules may change in the future. Investors should note that the views expressed may no longer be current and may have already been acted upon.
Note: This is a paid partnership with Fidelity
If you’re looking to improve your financial position in the long term, then investing is certainly one of the best ways to go about it. Nevertheless, it can be daunting for new investors to know how to get started or to fully understand the possible risks associated with different kinds of investments.
Thankfully, there are plenty of resources available these days that help to break down the ins-and-outs of what you need to know to make the right choices for you. The type of investments you make will depend on your current circumstances and thankfully we recently ran some Q&A crowd sourcing on our social channels where you could send in some of your burning questions and have them answered by an expert from investment firm, Fidelity.
Is there anything you should look out for before Investing?
One of the common misconceptions about investing is that you need to have lots of expendable money available to even get started. Although being able to invest large sums of money could produce great returns, you can certainly get involved with smaller amounts, especially if you make a commitment to invest at regular intervals as and when you’re able to.
What other things should you consider though before you begin your Investing journey?
Tom Stevenson, from Fidelity gives the following advice:
“You should only start investing once you have created a cushion against the unexpected. I would recommend having at least 6 months unavoidable expenses covered by money safely deposited in a savings account. Then only invest if you are prepared to tie your money up for five years or more. Any less and you could be caught out by the inevitable ups and downs of the market. Finally, decide how much time you are prepared to devote to your investments. if you have little time or interest then it is worth paying a little more for an investment professional to do the hard work of deciding where to invest your money.”.
Should you be Investing at the moment?
The best time to invest is the moment you’re in a financial position to be able to do so and understand the ins-and-outs of the process. When you’re looking to grow your investment, the more time you can give it, the better. This is because you have longer to take advantage of compound growth where earnings are reinvested over time to allow for even greater returns.
Tom expands on this further.
“I would always recommend investing steadily through the ups and downs of the market. Doing so takes the emotion out of investing, which means you will put money to work when it feels least easy. History shows that these difficult moments are often the best time to invest. The market has rebounded quite strongly from the lows in March but it remains well below the peaks earlier in the year. If the economic damage from lockdown is contained this could mean that shares are cheaper than they were.”
What’s the safest way of Investing money with the least amount of risk during this time?
One of the reasons for recommending that you only invest money once your other financial responsibilities are covered for a lengthy period is due to the risks involved. Each investment you make will have an element of risk attached.
The decision to make here is whether you want to minimise the risk to your capital by settling for potentially lower gains or accept a higher level of risk for potentially higher gains. Predicting the result of an investment can be difficult, especially if you’re new to the process and therefore lower risk options are worth considering.
Tom expands on this by saying “Investors tend to be rewarded for taking greater risks with higher potential returns. If you are really determined to minimise the risk to your money then you should settle for the low returns on a cash deposit. You know that you will at least get back the money you have saved even if you don’t earn very much on top. After cash, the bonds issued by dependable governments like the US and Britain are the next safest option.”
What advice would you give to someone totally new to Investing?
As we’re often told, “don’t put all your eggs in one basket”. This is certainly the case when it comes to investing your hard-earned money. Despite what someone might tell you, there isn’t likely to be an investment that’s guaranteed to provide you with the riches you always dreamed of. Yes, big rewards do happen, but so do losses.
Tom’s advice for people new to Investing is, “The first piece of advice I would give to someone new to investing is to bite the bullet and get started. The investor’s greatest friend is time. Even small amounts can grow to very significant sums indeed if the magic of compound growth is allowed to work on your savings. Second piece of advice is save regularly – this takes the emotion out of investing and means that you will put money to work when it feels least comfortable to do so (which is when history suggests it is the best time to invest). Finally, be diversified. No-one has a crystal ball and no-one knows which market or asset will perform best in future. Make sure you are exposed to the winners by putting your eggs in a variety of baskets.”.
Can I pay into a private pension alongside my works pension?
Although a state pension is there to help you once you’ve retired, it’s important to know that it’s unlikely to give you the freedom to do whatever you want. At the time of writing, the UK state pension provides £9,110.40 per year.
A work pension is worthwhile because it can help to improve the quality of your life once you’ve finished working and your employer will often top up your savings each month with their own cash influx. Nevertheless, there is no guarantee that your work pension will perform as well as you might have hoped so it’s also worth considering a private pension.
Tom suggests “Yes, you can. You should definitely save into your work pension first as it is likely that your employer will top up your savings with their own contribution. They may match your contribution so the more you can pay in the more ‘free money’ you will get from the company you work for. But once you have maximised this opportunity then definitely consider setting up your own pension or, if you are unsure if you want to tie up your money until you are 55, put any excess savings into an ISA, which is a bit more flexible.”
With people so dependent on cash at the moment is investing money a wise thing to do with what spare cash you do have available?
They always say that cash is king and in the current climate you can sometimes need access to your money at the drop of a hat so is Investing still a wise thing to do? Tom says “Whether you feel comfortable to invest depends on your own personal circumstances. Certainly you should think very carefully before investing in the stock market if you are likely to need access to your cash within the next five years. I would also suggest not investing in the stock market until you have put aside even cash to cover around six months of expenses, just in case.”
Ultimately, investing can be a great way to grow your capital and build a better future for yourself further down the line. The main thing to consider is whether you’re in a financial position to be able to invest but, assuming that you are, it’s a good idea to learn the ins-and-outs of investing and to get started as soon as possible.
When contemplating risk, everyone will be different. Although some people are willing to accept higher levels of risk for potential greater rewards, this can cause other people a lot of stress. To minimise this, it’s worth considering spreading your capital across multiple investments. In this regard, it’s also important to try to take emotion out of your investing process. Markets will inevitably rise and fall at different times and this is something that you’ll need to accept as an investor. By investing regularly at different points in the market, you are less likely to wait around for that perfect opportunity that may never arrive. Perhaps the most important thing to remember, however, is that you should invest in something that you understand well.
Listening to the advice of professionals is always a good thing to do, but never feel pressured to part with your hard-earned money until you feel it is the right time to do so. If you’re looking for a place to start learning, then head over to Fidelity and check out the wide range of written guides and videos that will help you to understand the process better.