For beginners, the world of investing can be a daunting place – from deciding which funds to pick to simply deciphering the jargon.
But it’s important to remember that even the most experienced investor was once sitting where you are now. At its simplest, investing is about two things: protecting and enhancing your wealth.
To help get you started on your investing journey, here are a few simple tips you might want to consider:
1. Think about your investment goal and time horizon
Most people save and invest to achieve a certain goal. Knowing what that goal is – from buying a first home to travelling in retirement – and when you want to achieve it is a good starting point in developing your investment strategy.
2. How much risk do you want to take?
The sell-off we saw in the immediate aftermath of the Covid-19 pandemic was a stark reminder: stock markets can go down as well as up, particularly in the short-term.
Having determined your time horizon, a sensible next step is to consider the level of risk you are willing to take to achieve your goal. Historically, those who have invested in stocks and shares have generally been rewarded over the long term (and by long term I mean decades rather than months or even years). But the price of this is often significant volatility in the short term.
3. Consider the role cash can play in your investment strategy
Even if your investment time horizon stretches out for decades (often the case for those saving for retirement), it is still important to build a cash buffer you can use if things go wrong.
Again, Covid-19 has shown us how quickly the world around us can change, and having a decent chunk of money readily available in an easy access account could be a vital part of a sound financial plan. You should consider holding at least three months’ fixed expenses in such a rainy day fund, and make sure you shop around for the best interest rate available.
4. Investing small and often can help smooth out the bumps
Once you’ve decided on your investments based on your time horizon and attitude to risk, you’ll need to think about how often you want to invest.
A good way to get in the habit is to consider investing relatively small amounts at regular intervals, usually monthly. This also has the added benefit of smoothing out your investment returns during periods of severe market volatility.
5. Keep your costs as low as possible
One of the best ways to maximise your investment returns over the long-term is to keep your costs as low as you possibly can. While differences in costs may appear small in percentage terms, over years the difference in outcomes when you’re paying 0.25% versus, say, 0.5%, can run into thousands of pounds.