We look at the basics for when you’re considering starting out in the world of small investing
Good question. But the question that should come prior to that is … can anyone invest? Since investing isn’t like fixed rate savings and involves risk, the answer is that only those who can afford to invest should consider doing so.
As for why people invest, there are many reasons. Investors generally have an objective or set of objectives, the things they’re looking to achieve over the term of their investing.
So, while some people may be looking to add to their pension pot over two decades, there are others who are looking to make their money grow over a shorter period of time, such as five years.
Investing is also something that’s being widely discussed in the press right now, since savings rates aren’t generally able to beat inflation and there are currently very few (if any) cash ISA products that match inflation.
Where does risk fit in for investors?
Simply put, the value of investments can go down as well as up. This is the most important thing to be aware of and it’s also the reason why only those who can afford to invest should consider it. Each investor has their own requirements and objectives, and their risk tolerance will be related to these as well as their natural feelings about risk.
Some investors are looking for a bigger return over a shorter time period while others may be looking for a steady but lower return over a longer period of time. In the case of the former, then more risk is likely to be involved – since with higher risks there are potentially higher returns.
There are various risks to consider, and these include things like specific risk where a company may lose value due to an unexpected event, as well as things like manager risk where a fund may underperform – and there is a lot of variation between the performance of managed funds.
There are some good guides to understanding risk available online from places such as the Which? consumer site, specifically aimed at investors who are just starting out.
Where can I get advice on my investments?
While there’s a whole load of information available online, it’s just there for … well, informational purposes. Which means that If you’re looking for investment advice then it’s essential to consult the services of a qualified and independent financial advisor. If you’re in the UK, then the Unbiased (dot co dot uk) website is set up to help people find qualified IFAs in their area.
The types of share trading account that are available online are aimed at people who are confident in making their own investment decisions so if you’re looking at non-advised services, it’s important that you feel you have the necessary confidence and knowledge of investments.
One of the most effective ways of being smart about investing is to make sure you’ve done some research and have knowledge about the things you’re investing in. It’s also worth reviewing your investments over time too – in order to ensure that the balance remains right for your level of risk tolerance, and to consider any changes you may want to make.
Mark P is a finance and investing blogger, join me on Twitter for more investment chat.