Everyone needs to have some form of financial goal throughout their life. It can be that you are saving up for a holiday or buying your first ever house, we all have certain goals that need financing in order for us to achieve them. Many savers who are fed up with risible rates of return on their cash are being tempted to invest in stock markets instead. This article will let you know what taking a punt on shares really means for your money, what and where to buy, and how much risk to take.
Make a plan
Create an investment plan that works for you. Thorough and useful funds research will allow you to be able to identify the types of product that could be suitable for you and your money. A good way of going about your investment plan to is to start thinking about low risk investments such as Cash ISAs. Once you have built up confidence and know what you are doing, add medium-risk investments like unit trusts if you’re happy to accept higher volatility. Only think about high-risk investments once you’ve built up low and medium-risk investments.
Think about what you want to invest in
Cash is normally viewed as the least volatile asset class. Your money will always be safe and protected by the Financial Services Compensation Scheme in the event of a bank or building society goes bust. Fixed interest investments, which are loans to companies or governments, provide modest but consistent returns and are usually regarded as lower risk than equities. You can invest in this sector via bond funds.
Shares, also known as equities, allow you to buy a certain amount of stake in a company. Shares tend to rise in value when a company does well and fall when it does not. You can also invest in commercial property funds and commodities, such as steel, oil or gold.
What to avoid
While traders of all backgrounds and educations end up making the same mistakes from time to time, beginner traders need to make sure that they do everything they can to stop themselves from making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more limited than with knowledgeable traders. Avoid high-risk products unless you completely appreciate their specific risks and are happy to take them on. Only consider higher risk products once you’ve built up money in low and medium-risk investments. And some investments are usually best avoided altogether.
Invest regularly to minimise losses
You will never be able to pick the absolutely best moment to invest to beat the market. You can though, increase your chances of increasing your returns by drip-feeding your money into a fund often, for example once a month, rather than investing it all at once. This is known as pound-cost averaging. You buy fewer shares if you catch the market when it is rising but you can buy more at cheaper prices if it is falling, averaging out the overall cost and risk.