The five golden rules of investing

But please remember, the value of your investment can go down as well as up so you might not get back the amount you put in. Before making any investment decisions it’s always important to do your research and think about the risks you are willing and able to take.

1. Keep some cash ready

Just like markets, life can have its share of ups and downs too. So whatever you’re investing in, first make sure you have enough money that you can easily access to cover any unexpected expenses. Around six months’ worth of spending sounds sensible, but it should be whatever amount you feel comfortable with.

2. Start investing early

The earlier you invest, the more time your money has to grow into a nice sum. Starting early takes advantage of compounding — the name given to the returns you make on both the original amount you’ve invested, as well as any return your money earns along the way. In other words, your money earns returns on its returns. Compounding speeds up the growth of your investment over time, and who doesn’t want that? 

If you’re saving for retirement and aren’t sure how much to invest, there are pension calculators that can give you an idea about how much you should put aside each month or year to reach your target (if you have one). But it might simply be less stressful to put aside what you can, as soon as you can.

3. Focus on the long term

Few, if any investments are fully protected from the ups and downs of the stockmarket. But the longer you invest, the more time your money has to even out any troughs along the way and participate in any growth. When we talk about the long term, think 5-10 years, or even more if you can. Remember, when it comes to stocks and shares, it’s not about trying to time the market. It’s the time in the market that counts.

4. Don’t put all your eggs in one basket

A diversified investment is a mix of different asset types, like equities (shares in a company) and bonds (loans issued by companies or governments), or even gilts – loans specifically issued by governments – which tend to perform well in different market conditions. Often referred to as a ‘portfolio’ when held together, these investments help to spread some of the risk if any one asset class sees more downs than ups.

You can, of course, decide for yourself how to allocate your money across different assets, companies, markets and regions. But when it comes to your hard-earned money, it could make sense to leave these decisions to the professionals and choose a ‘ready-to-go’ investments like a multi-asset fund. With these types of funds, your money is diversified across different asset classes by experts based on up-to-date market information and research. 

5. Make the most of your tax-wrappers 

To avoid giving more money to the taxman than you have to, it’s important to make the most of the tax wrappers available to you each year. ISAs (Individual Savings Accounts) and Junior ISAs (JISAs) are known as ‘tax wrappers’. This means that they ‘wrap’ around your investments protecting them from capital gains tax and personal income tax. You can transfer your ISAs or JISAs between providers, and you don’t have to declare them on your tax return (if you complete one), saving you time and effort too. However, it’s important to remember that the tax rules for ISAs and Junior ISAs may can change at any time and might depend on your individual circumstances. 

The views expressed here should not be taken as a recommendation, advice or forecast. We’re unable to give financial advice. If you’re unsure about the suitability of your investment, speak to your financial adviser. If you don’t already have one you can find one here.