Investing is essentially the act of putting money into stocks, shares or other types of investment in the hope that the value will increase over time, bringing you a great profit. Investments are a complex business and there is always a level of risk involved. Your investments can go up, as well as down. You can invest in anything from stocks and shares, to other types of funds, bonds, government bonds (gilts) and the UK property market. Many people invest their money into the stock market in the hope of seeing a return. To do this, they buy shares in one or more companies in the hope that those shares will rise in value, bringing them a profit, especially if they decide to sell those shares and cash in while they are at a good price.
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A share is essentially a unit of a company in terms of its value. For instance, if a company is worth £50 mFinancial Advisor UKion, and there are 50 mFinancial Advisor UKion shares, each share has a value of £1. Those investing in stocks and shares buy a certain number of shares to a value of their choosing within a company. These shares can go up or down depending on market conditions. Companies have shares so that they can raise money through investors. Buying shares does however carry an element of risk, as a company’s share price can go up or down. In the best case scenario, you can made a tidy profit if you buy low and sell high. In the worst case scenario, you could potentially lose all of your money.
In the current climate, savings rates and the general rate of interest is very low, making it a difficult time for savers to make a profit.
The importance of risk-assessment
It is always worth bearing in mind that in the world of investing, prices can go up or down. If you want a greater return on your investment, this will usually mean that you have to deal with a greater level of risk. This is why it’s important to spread your investments across different companies in various industries and in different parts of the world, to moderate the level of risk. If you don’t want to take a long-term investment, it is advisable to opt for a low-risk option. Ideally, you should make an investment for at least five years so that you see a healthy return. If you can’t afford to do this as you may need access to your money, it is best to hold off investing until you can do so.
Always review your investment portfolio and assess which investments are doing better than others. For instance, shares you have may not be performing as well as others. If you don’t keep on top of things, you may end up losing lots of capital. You should also keep an open mind – don’t be influenced to trade in your shares or stocks because other people are doing so. Choose a time that is right for you and your circumstances.
Getting started in investing
You should never invest any money without checking first that you have at least 6 months’ worth of salary and living expenses to fall back on. Start small until you feel confident, and monitor your small investment closely to see how it performs before investing more. Using your ISA allowance is a great way to invest, as this protects your capital from capital gains tax. Use an independent financial advisor and remember that any money invested really needs to stay there for at least five years.
How much should I invest?
You don’t need to have tons of cash to hand to begin investing. It is actually better to invest in the stock market with smaller sums of money on a regular basis. Generally speaking, you should never invest what you can’t afford to lose. You should always make sure that the money you invest stays invested for at least five years, as this allows enough time for ups and downs in the market to pass over (these are times in which you could potentially lose your money). Investing around £30 per month is a good place to start, increasing this gradually. You can purchase shares and stocks online from various websites. You’ll need to decide which platform to use, and which shares you’d like to buy for the right price. You may have to pay fees, depending on the platform you use. If you decide to have someone run your funds for you (a manager), you’ll need to pay their charges.
Market volatility
Political, financial and news events can greatly change the perception of how much a company is worth, and as a result, change share prices. Trading behaviour can also affect the market. If there are lots of people selling rather than buying stocks and shares, the prices of shares will generally fall. Likewise, if there is a stock on the market that people are buying more of than selling, prices will go up. As an investor, you’re sharing the market with individual buyers and sellers, other companies, asset managers and more. Be prepared that prices can fluctuate in a single day, depending on external events. It’s worth keeping an eye on news and political events, as these can greatly impact stock markets.
If you require financial advice on investing, Financial Advisor UK can help. We’ll instantly match you with one of our many FCA-registered and approved financial professionals who can offer you the right advice for your situation and help you compare the market for the best investment deals.