The world of investments represents a high risk, high reward outlet for your hard-earned cash. At least that is what many people may expect if they have not invested before. In fact, it is not always about having large sums of money put into risky stocks, with many options providing a much safer yet still rewarding option as an alternative to keep cash in a savings account. As knowing where to start and where to focus your investment is not always easy, here is our guide to help you get started and start reaping the rewards.
Manage Your Expectations
One of the attractions of investing is discovering stocks that are low in value to purchase but have the potential to grow exponentially. However, if they were easy to find, everyone would be making millions from investments. Instead, managing your expectations is the best outlook to have when starting. Unlike a savings account that will not see your money reduce and will gradually gather interest each month, stocks and shares will go up and down and you could lose money. This will depend on the market you invest in, with some more volatile than others. However much you have to invest, ensure you are happy to take the risk with it and be prepared to wait many months or years until you see the growth you want, ideally as long as 5 years if you do not need the cash straight away.
Avoid Investing All of Your Savings
In the same way you would not want to gamble all of your nest egg on the roulette table at a casino, you should keep some of your savings stored elsewhere. Ideally, you will have an emergency savings fund alongside a savings account, one that will only be used when the unexpected arises. You could take out a payday loan to cover an emergency expense, for example, and spread the cost into affordable repayments. However, if you have emergency savings you can rely on too that is separate from any you are investing, you will cover all potential pitfalls as they come up. Set a budget that you can afford to invest and then start your search for suitable options.
For those with no prior investing experience and unsure where best to start, a stocks and shares ISA could be ideal. Instead of a regular cash ISA that earns interest on an allowance up to £20,000 each year, you can use your allowance to invest instead. A safe way to approach this is to split your allowance over both types, especially if you want to have short term access to the money when you need it. You can choose to invest in shares or bonds as well as shares in an individual company. An attraction of a stocks and shares ISA is that you will not have to pay any income tax on any gains from these investments. There are many providers as well as high streets banks that offer these, so it is best to research and find the cheapest platform to use first. From there, you can choose what you want to invest in from popular stocks to more obscure choices and then keep track of their performance.
There are various things to keep in mind when starting out in investing, so research into your chosen sectors and understand the risks involved. Seek the help of a financial advisor if you are still unsure and stay patient for long-term gains.
