People planning their investing journey

5 questions to ask yourself before investing

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Entering the investing world could be the next important milestone in your financial life. So, before you embark on this new adventure, make sure you’re prepared by answering these 5 simple questions…

 

What am I investing for?
Whether it’s to save for your retirement, give your children a head-start, or simply save for the future, investing could be a great way to bring long-term projects to life. Starting by outlining your investing aims will help you work out how much you need to invest upfront and add as regular payments. If you don’t have a specific project, don’t worry. Starting now is more important than having a goal and you can always decide later what to do with your potential returns. In fact, 42%1 of Brits invest just because they want to make their money work harder, according to our own research.

1: Wealthify ISA survey. Research conducted by Opinium Research between 9– 12 March 2018 amongst 2,010 consumers

 

How much can I invest?
The amount of money you invest is up to you, but as a rule of thumb, you should only invest what you can afford. It might help to draw up a budget listing your monthly outgoings, including bills and groceries, and not forgetting to put some money aside for unexpected expenses. Then, look at what’s left and decide how much of it you want to invest. Keep in mind that you don’t need big lump sums to start your investing journey – many online investment services, like Wealthify, let you invest from as little as £1 and add to it regularly.

 

How long shall I invest for?
Investing should always be approached as a long-term strategy. A Barclays survey reveals that over any 10-year period in the past 115 years, shares have outperformed cash 90% of the time2. Remaining invested over years can typically help you ride out the market bumps and gives your money more time to benefit from the power of compound returns (generated by returns). For example, if you invest £2,000 for 10 years in a medium risk plan, your return could be £661, but with compounding, it could grow to £3,595 if you hold onto your investments for 30 years.

2: Barclays Equity-Gilt Study: Source Telegraph: https://www.telegraph.co.uk/finance/personalfinance/investing/11477122/Historys-lesson-for-Isa-investors-Barclays-Equity-Gilt-Study-2015.html  

The projected values in this blog show possible future values for a Confident Plan. These are only forecasts and not a reliable indicator of future performance.

 

What shall I invest in?
Investors can choose from a number of different of investment types (like shares, bonds, commodities, or property) and a range of global markets (like the UK FTSE 100, Japan’s Nikkei225, or the US’s S&P500). You could pick just one type of investment (e.g. buy shares in a FTSE 100 company), but then your portfolio will lack diversity, which could increase your investing risk. One way to lower your risk is to buy into a range of investments and global markets to help offset the chance of everything you own performing poorly at the same time. To do this without spending weeks researching and buying investments yourself, you can buy investment funds instead, which are like a basket of investments an expert has put together for you.

 

Shall I do it myself?
If you have time to analyse markets and search for assets, you could pick your own investments and regularly check your plan and rebalance it when necessary. But, be aware of the different costs (e.g. account fee, transaction costs). If you’re too busy or don’t feel confident enough to invest by yourself, you could get an expert to do the hard work for you. In the past, you had to be wealthy for someone to manage your investments for you, but nowadays, with robo-investing platforms, anyone can have access to investment management services. However, if you feel you need financial advice, you should speak to a qualified financial adviser first.

 

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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Including you.

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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.

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