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At a glance

  • An investment is when you buy something with the hope that it’ll make a profitable return
  • This can be the purchase of a stock or something more tangible like property 
  • 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.

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.

What is investing?

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.

Why should I take risks with investing?

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.

Investing terminology can be overwhelming

Do you get confused by big investment jargon? Use our investment glossary to get an easy understanding of key investment terminology.

How to invest my money

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.

Where can I invest my money?

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.  

Stocks

Stocks refer to shares in a company or organisation. So, when you buy into a company, you’ll own a portion of the firm. This might come with a range of benefits including the right to vote on company decisions and dividend pay outs.

To learn more on shares, visit our guide.

Bonds and gilts

Bonds refer to lending to a company where you can expect to earn a fixed rate of interest over a defined term. Gilts are similar but you are lending to the UK Government rather than a company. Once the term comes to an end your original capital will be paid back. Bonds differ from shares because you’ll never own a piece of the company or organisation.

To learn more on Government bonds, visit our guide.

Unit Trusts / OEICS

A unit trust or an Open Ended Investment Company (OEIC) are both types of collective investment that pool money together from many investors and uses this to invest on their behalf. A unit trust or OEIC is managed by a professional, which could be the best option for you if you’re not confident investing on your own.

To learn more about unit trusts, visit our guide. 

Exchange Traded Funds (ETFs)

An Exchange Traded Fund aims to track a particular sector or market segment. It’ll therefore buy a range of equities, bonds and other investments to achieve this goal. It can be one strategy to diversify your portfolio.

To learn more about ETFs, read our guide.

Commodities

Commodities refer to investing in the raw materials which make everyday goods. This can include oil, gold, and livestock to name just a few.

To learn more about commodities, read our guide.

Tips for beginners

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.

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Looking for advice?

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.

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