Investing for beginners

The word 'investing' often makes people feel uneasy. But when we use the word in relation to other things, we think about it in a positive way. We invest in ourselves, in our careers and in our futures - to make things better.

So why when it comes to investing with our money are we suddenly put off?

Investing can seem too confusing, too risky, 'not for us'. Like everything, the more you know about it, the better informed your decisions are.

There are many articles which call themselves ' investing for beginners'  but maybe a better place to start is to simply understand the 'point' of investing. Why could it be a good idea? Why should you consider it?

It is always best to have some money readily available in the bank in case of emergencies, but investing gives you the opportunity to make your money grow and work harder.

One of the main principles of investing is that your money could grow (which is called the returns) but there is a risk you might lose money - it is all about balancing the two.

But I’m not comfortable losing money

If you’re already thinking about the word 'lose' and thinking that you aren't comfortable losing ‘any’ money - it's worth considering that if you have money in savings, there's a chance you're already losing money because of inflation. Inflation, put simply, is the rising cost of goods you buy. If inflation is increasing it means you can buy less with your money.

We've used a rate of inflation of 2.5% each year. That means the purchasing power of £10,000 today could be worth just £5,394 in 25 years. The actual rate of inflation could be higher or lower.

So what do you need to know if you are considering investing?

First things first. Not all investments are the same –some are higher risk and some are lower risk.

So, let’s start with you - you'll need to think about what type of risks you can, and are comfortable, taking. There is no right or wrong answer to this.

  • Some people want to invest in very low risk funds. These funds have a lower risk but they are likely to have lower returns.
  • Some people want to invest in higher risk funds. These funds have a higher risk but there is also the potential for greater returns.

With investing, the value can go down as well as up so you may not get back the amount you put in. There is no need to think about any of this on your own - help is always at hand. A financial adviser will look at your needs, discuss the level of risk you are comfortable taking and balance that with the level of rewards you are aiming for. Then they will recommend the options that are right for you. After all it is their job to be the expert – not yours.

Watch our short video which explains the Basics of Investing

Before we get started it’s important to understand the basics of investing.


Why invest?

If you’ve got money sitting in a savings account, it’s likely to be earning little or no interest.

It’s important to keep some money, as your rainy day money.  Our view is you should keep enough in your savings account to cover 3 months outgoings.

But if you’ve got more than that sitting in a savings account,  you could effectively be losing money in real terms.

That’s because the returns you’re getting could be less than inflation. Put simply, this means the buying power of your money could be falling over time.

So, investing gives your money the chance to work harder over the longer term.

The next big question is …

Where to invest?

There are four main types of investment, also known as  ‘asset classes’

These are:

Shares, this involves buying shares (also known as equities) in a company.

Commercial property involves buying property including retail, office, industrial.

Bonds are loans taken out by a company or by governments. UK government bonds are referred to as Gilts.

And cash, includes things like currency and deposit accounts.

Each of these asset classes have different levels of risk and potential rewards.

With all types of investing, the value can go down as well as up,  so you might not get back what you put in.

That’s why, before you invest, it’s important to understand the different risk and rewards.

Let’s look at each asset classes in a bit more detail

Shares generally offer the most potential growth but carry the highest risk. That’s because the value of shares can quickly rise or fall.

Property can provide a regular income which can increase, if property prices rise.  But if a property is empty or property prices fall, then the income could stop or go down. Property can also take a while to sell.

Bonds provide regular returns, but there’s always a risk that a company could go out of business. And there is even a risk that a Government can’t pay back a loan so could default on a bond.

And cash provides steady returns, but inflation could eat away at the value

But Investing is all about trying to find a balance between risk and reward. So you'll need to think about how much money you could afford to lose, as well as what type of risks you can, and are comfortable, taking.

Understanding volatility

If an asset class rises and falls rapidly over a short period of time, it’s considered to be more volatile.

The more volatile an asset class is - the higher the risk usually is.

Asset classes that achieve higher growth, can also experience greater losses at some point. Those that achieve lower growth can experience less dramatic downturns.

So the volatility of your investment is another important factor to consider.

The importance of spreading your investment

Different types of asset classes are likely to perform well at different times.  So, the problem is knowing what you should invest in?

For example, one year shares may be performing well and bonds may be underperforming. The following year bonds might be outperforming shares.

Overall what performs best and worst one year, could be very different the next. And what happens in the past isn’t a guide to what might happen in the future.

So, in this example if your investment is spread across both shares and bonds,  over time the returns are more likely to be consistent than a fund which only invests in just one type of asset.

That’s why many people choose to spread their money over a variety of asset classes. This is known as diversification.

By spreading their money this way, they’re able to potentially gain some exposure to the higher performing assets without the risks of investing in just one asset class.

So they avoid putting all their eggs in one basket.

This is called multi asset investing.

There’s a range of multi asset solutions available, with the potential to achieve more consistent returns than funds invested in a single asset class.

These are managed by investment experts, highly experienced in managing multi-asset funds. And there’s a range of options designed to meet a variety of different needs.

To find out more, speak to your Financial Adviser.

By not putting all your eggs in one basket, it could help reduce the risk of losing money.

We spread your money across a number of different types of investments.

And have a wide range of investments so you can find something to suit your needs at a level of risk you're comfortable with.

Find out more about our investment solutions.

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Our investment guides aim to help you understand some of the different ways you can invest your money.

Deciding what to invest in

It's true that putting money in shares and other types of investments is more risky than investing in cash, and market events over recent years have gone a long way to showing this.

Looking for help?

Investing can be tricky to understand. A financial adviser can help guide you through the jargon and figures to help you achieve your financial goals.
We believe less can definitely be more. So the advice recommendations we make are from a carefully selected range of products and funds. Using a focused and controlled approach allows us to develop an in-depth knowledge of the products, so we can safely and confidently recommend a solution that’s right for you. This is known as restricted advice.

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