Expert gives five tips on how to start investing – rather than relying on savings after cash ISA cut
Following changes to the budget, many savers may be pushed to invest in the coming months; But how will you manage the transition from the security of savings to the stock market?
Slower inflation could encourage further interest rate cuts, which could push savings rates down; And the reduction in the cash ISA allowance may make it more effective to stash your savings in a stocks and shares ISA for tax-free returns.
Starting an investment account can be daunting. Cash savers only need to worry about the provider, deposit limits, and interest rates and conditions offered. But putting your money to work in the stock market can be more complicated.
There are other factors to consider, such as the investment platform you choose, the type of tax package and asset you invest in (such as a fund or stock), and your own risk attitude. Investing is better in the long run than leaving money in cash; Therefore, it is worth starting the stock market after creating a savings safety net initially.
Independent He spoke to Jason Hollands, managing director of Bestinvest, to give him his top tips on how to start your investment journey.
Consider your goals and time horizon
Take time to think about what goals you are trying to achieve with the money you have set aside. You can invest in a mortgage deposit, perhaps your child’s future, or even your own retirement.
“Having clear goals in mind helps you think about a potential time horizon for how long you can wait to invest, which in turn helps you determine the level of risk you can tolerate,” Hollands said.
Investors with a very long-term time horizon may be better off investing in stocks.
Alternatively, fixed-income bonds may be more suitable for shorter-term and more cautious investors, although their returns are likely to be lower than investing in stocks.
Consider how involved you want to be
The main investment options are to invest money in individual stocks and bonds or to use a fund where an asset manager creates a portfolio for you.
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Capital is at risk.
Terms and conditions apply.
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Hollands said: “While some first-time investors are keen to develop a new hobby, learn to research companies and start buying and selling individual shares and bonds, this is not the case for everyone.
“Most people choose to invest through funds where their money is pooled with other people’s cash and invested in a portfolio that is either chosen by a fund manager or designed to replicate a general market benchmark such as the UK’s FTSE 100 or the US S&P 500 indexes.
“Fund investing is less risky than direct investing because your investment is diversified across many different holdings.”
Choose the right platform and account type
You can build your own portfolio through a DIY investment platform or pay a financial advisor to help you make a plan and determine the options that are best for you.
The type of platform you choose will depend on how you want to invest.
Hollands said: “Some target primarily equity investors, so if you want to go that route, low trading fees and equity research tools will be important features.
“Others are primarily targeted at fund recipients, where pricing structures, tools and level of support are all things to consider if you want to be able to talk to someone.”
Also consider the type of account you invest in, such as a stocks and shares ISA for tax-free returns, or a self-invested personal pension (SIPP) if you’re saving for retirement.
Diversification is important
Diversification, or spreading your investments, can help you reduce risk and take advantage of a wide range of opportunities.
Hollands warns: “Novice investors often overlook this and dive head first, picking funds or stocks that they like, that are tipped, or that are performing late. This is a very risky approach.”
Before making your first investments, decide how much exposure you want to different asset classes and regions, and once you have only one plan, consider what investments you need to choose to fill that plan, Hollands advises.
Remember that you should periodically review and potentially rebalance your mix.
If this sounds scary, Hollands recommends considering multi-asset “ready-made portfolios” that provide diversified exposure to a mix of asset classes and markets to suit different risk profiles.
regular investment
Time in the market is more important than timing, so you shouldn’t worry about short-term economic or political events that may temporarily impact your portfolio.
Hollands said: “Regular investments, such as making a monthly contribution to a chosen fund via direct debit, can help overcome timing concerns and also smooth out short-term fluctuations in the prices at which you purchase your investments.
“Investing regularly gets you through ups and downs, steadily growing your wealth, and is a great discipline.”
When investing, your capital is at risk and you may get back less than you invested. Past performance does not guarantee future results.
