It’s often assumed that investors are people who know everything about the world of finance and stock markets. But is it really the case? Do you need to be a financial wizard to start investing and make your money work harder?
Do you need to be a financial expert to invest?
No, you don’t need to be a financial expert to become an investor. And part of the reason why is because we live in exciting digital times where you can take the plunge in just a few clicks and without much knowledge about investing. Thanks to digital investment platforms, like Wealthify, the world of investing is now accessible to everyone, regardless of how much they know about stock markets. If you don’t understand how investing works, that’s fine, there are people who do and, for a small fee, they’re willing to help. With online investment services, also known as robo-investors, you don’t need to do any of the hard work – there are experts for that! You simply choose how much you want to invest and select the risk level you’re comfortable with, then our Investment Team will pick the right mix of investments and continually monitor the markets for opportunities. They’ll even make adjustments to your Plan to keep it on track with your investment style and goals – see, who knew investing could be so effortless?
What are the key things to know about investing?
Investing is something you can do, even without financial expertise. But that doesn’t mean you should be reckless in the way you invest. In fact, it could still be good idea to learn the basics of investing, so you can enjoy the journey a bit more – and think about all this new knowledge (and jargon) you’ll be able to show off during family dinners!
Know your investments
If you want to learn about investing, why not start by getting familiar with the different investment types, that way you’ll be able to understand where your money is invested. So, let’s start! When a company wants to expand, it may decide to sell a portion of its business to raise funds. This portion is sold on the stock markets and anyone can buy fractions of it. If you buy some fractions, you’ll find yourself with shares and you’ll own a little part of the whole company – you’ll be what we call a ‘shareholder.’ As an investor, you can also buy bonds, which means you’re essentially lending your money to organisations (companies and governments) in need of funds to either grow or start new projects. And like any loan, you get something in return, and in this case, it’s in the form of interest.
Other types of investments include property and commodities. Owning property generally means buying a house to either let it or sell it later in the hope of making a profit. But it’s not the only way to invest in property. You could also buy shares of companies that own or manage property. Now, commodities are economic goods that you can invest in – think of oil, gold, and even food, like corn.
Knowing where your money is invested is a great thing, but it’s also important to understand how profits are generated. Investments are bought and sold on specific markets and their price will fluctuate – some investments will even see their price move on a daily or hourly basis! So, one way to make a profit is to sell your investments at a higher price you bought them for. Another way is that your investments pay out an income – with shares you can receive dividends and with bonds, you should receive interest payments. If you do get an income from your investments, then you can choose what to do with it, you can either cash it and spend it on whatever you want or you can re-invest it and give it a chance to grow further.
Learn about diversification
Investing isn’t without risk – returns aren’t guaranteed and there’s a chance you could end up with less than you initially put in. However, there are ways to manage your investment risk and one thing you could do is diversify your portfolio. It does sound a bit jargon-y, but the concept is very simple: if you want to mitigate risk, it could be wise to spread your money across different investment types and regions. That way the overall performance of your plan will not just depend on one or two companies or sectors, and poorly performing investments should be balanced out by others doing well. Most robo-investing platforms will use funds to build you a diversified portfolio – these funds are like hampers full of investments and they allow you to spread your risk without the hassle.
Think about the long-term
If you want to make the most of your investment journey, you may want to let time work its magic. Too often, investors will try to predict market movements and guess when to buy and sell to make a profit, but markets are unpredictable, and unless you can see the future, it’s extremely difficult to know where they’re heading next. Now it doesn’t mean you should buy and sell randomly, instead think about doing nothing and just waiting. Markets are like roller coasters – they have ups and downs. But generally speaking, downturns don’t last forever and historically, most markets have managed to recover from crashes. Remaining invested over the long-term could help smooth out the bumps and give your money more time to grow. According to many studies, the longer you stay in the game, the more likely you are to make a gain. For instance, people who invested in the FTSE 100 between 1984 and 2020 have had an 89% chance of making a positive return1.
Take advantage of compounding
In the world of investing, there’s a thing known as compounding and as an investor, you may want to understand how it works. If you hold shares and/or bonds and receive regular payments in the form of dividends and interest, you can choose to re-invest them. But why would you do that, you ask? Well, by putting your profits back into your Plan, you could be giving your pot a boost. Think about it, providing the environment is favourable, your profits could generate further profits, and these new profits, if re-invested, could deliver even more wealth, and so on and so forth. Over the long-term, your money could quickly snowball - and that’s the power of compounding! Pretty magical, no?
Be aware of fees
Investing isn’t free, especially if you’re getting experts to help. Typically, you’ll need to pay fees for the service you’re getting, and these costs will directly be taken from your investment pot, which means, they will eat into your returns. So, it’s important to try and keep these fees to a minimum. Before committing to a provider, make sure you’ve done your research. Shopping around and comparing costs between different platforms could help too. But don’t just focus on the costs and have a look at the service overall. Do they let you choose a level of risk that’s right for you? What products do they offer? Can you easily check the performance of your investments? And how good is their customer service? These are questions worth asking yourself as they will impact where your money goes and how much control you’ve got over your investment journey.
To wrap up
Nowadays, it’s possible to invest, even without a degree or much knowledge in finance. Thanks to robo-investors, anyone can become an investor and give their money a chance to grow – and in itself, that’s revolutionary!
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1: Data from Bloomberg
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Past performance is not a reliable indicator of future results.