Preparing to become a first-time investor
It’s daunting to think about how you’ll support yourself when you retire.
However, forward planning and a few strategic savings and investments decisions could ensure that you’ll have a comfortable income. While many people are taught about the value of saving when they are young, there’s comparatively little financial education on how to invest.
Resultantly, making your first investment can seem overwhelming and risky. But it doesn’t have to be intimidating. By preparing your finances carefully and considering why you want to invest, becoming a first-time investor could be a joyous experience.
Why should you invest?
In general, the main reason people decide to invest is because they’d like to see a higher rate of return on their money than they do with a traditional savings account. By and large, saving is a safe way to invest your money but low interest rates mean than in 2013, your money probably isn’t growing as rapidly as you’d like. Investing is a riskier option, as there’s a higher likelihood that you’ll lose your money, but a good investment can deliver a significant profit.
There are many different ways to invest your money, and the type of investment you choose to make will vary depending on your investment goals. Buying property, for instance, is a long-term investment option. That’s because you expect the value of the property to increase over time so you may sell it for a profit in future. However, there is a risk involved here as it’s also possible that the property will decrease in value over time.
Stock market investments, on the other hand, are typically more risky and are often confined to people with a large amount of capital at their disposal. However, one way to make stock market investments is with an investment ISA, which is offered by some high street banks like Barclays and HSBC. In contrast to a Cash ISA – which acts like a normal savings account – an Investment ISA (or Stocks and Shares ISA) invests your money in a range of concerns, without you having to pay tax on any profits made.
Currently, the Investment ISA allowance is £11,520, £5760 of which can be in the form of cash. However, financial advisers usually recommend that you only invest in this kind of ISA if you are willing to let your money remain there for at least five years, to balance out any stock market dips that may occur.
Getting your finances in order
Before making your first investment, it’s important to make sure that your finances are in good shape. For example, consumer advice experts Which suggest you should clear all your debts before making an investment, as you may otherwise struggle to make your loan and credit card repayments. They also suggest that you protect your income against ill health that may leave you unable to work, and that you take out life insurance if you have dependants before you make an investment, to safeguard against market fluctuations.
Additionally, it’s important to remember that investments are not a replacement for savings. Always ensure that you have savings built up before making an investment so you won’t be left high and dry if things go wrong.
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