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Whether it’s saving towards your first home or building your retirement pot, investing your money can help you achieve your long-term goals sooner. But it also comes with several risks you’ll need to consider.

If you intend to take control of your investment portfolio for the first time, or if you’re looking for an experienced professional to take control of your account, then this beginners guide is a great place to learn the basics.

An investment is when you buy something with the hope that it’ll make a profitable return. This something can be a share in a company or a more tangible asset like property.

No matter what you’re buying, there’s a certain risk attached to investing. Although you’re hoping that your investment will grow, there is the chance that it could fall in value.

While there’s the inherent risk that you’ll lose some or all of your money, investing has the potential to outperform even the best of savings accounts over the long-term. This also means it can be a great way to beat inflation.

To illustrate, consider the example below.

According to the Bank of England, inflation averaged 2.2% a year between 2009 and 2019. So, if you had £10,000 in 2009 it would need to earn you £2,455 over this period just to retain its purchasing power.

If you had kept this money in a one-year fixed rate bond, it would have earned 1.85% AER per year on average over this period according to Moneyfacts data.

While this isn’t enough to beat inflation, longer term fixed rates, which have a term of 550 days or more, could beat the rising cost of living over that period. These savings accounts returned an average of 2.44% AER over this period meaning your money would only be marginally increasing in value.

In comparison, if you had spread £10,000 accordingly across the FTSE 100 then you would have averaged a return of nearly 8% a year.

It’s natural for your investment portfolio to experience ups and downs.

While a savings account is perhaps the best choice if you want a guaranteed rate of growth, there are some steps you can take to limit volatility in your portfolio.

Mainly, you can start by spreading your money across a range of assets. This is known as diversifying your portfolio and it reduces your exposure to a single investment type. So, if that one share, trust or fund performs badly then hopefully the performance of your other investments can keep your portfolio growing.

If you’re looking for ways to diversify your portfolio there are several types of investments to consider. Some of these investments are listed and briefly explained below, with more in depth explanations found in our separate guides.  

Before you begin investing it’s worth keeping some important tips in mind. 

Firstly, if you’ve yet to make use of your ISA allowance, consider investing in a stocks and shares ISA. Outside of this wrapper you could be liable for income or capital gains tax on any gains you make, so make sure at least £20,000 of your savings or investments is tax-free each year.

For some people this £20,000 will be more than enough, which brings about the second tip. You should never invest more than what you’re willing to lose.

If a bank or building society fails then up to £85,000 of our money will be reimbursed by the Financial Services Compensation Scheme (FSCS). While you’ll also enjoy the same protection if your investment company goes bust, you can’t claim compensation for a poor investment decision.

This is important because a period of economic downturn, company scandal, or falling property prices could mean you’ll lose money at any moment, and there’s no one to reimburse your losses.

Finally, remember that investments should be allowed to grow over the long-term, so you’ll need to be prepared  to not have access to your money over an extended period.

That being said, emergencies do happen. You could find yourself unemployed or you might need to pay a once-off lump sum later in life. This is why it could make sense to keep sufficient money in an easy access savings account, where you’ll earn a guaranteed rate of interest and you can access your money at a moment’s notice.

Looking for a way to grow your investments? Or are you looking for ways to mitigate the risk in your portfolio? Speak to a professional and independent financial adviser to identify your investment goals.

Our preferred financial advisers are Kellands Hale, and you can speak to them by filling out a contact form on their website.