Investments

An investment in its simplest form is when you buy something, with the hope of it increasing in value. There are a number of ways that you could choose to invest, including stocks and shares and equity funds.

Investing doesn’t have to be intimidating, beginners can learn how to invest successfully and grow wealth.

We’ve written about investments to give you some useful information about starting to invest. It doesn’t include any personal advice or recommendations to buy, sell or hold any investments.

Before you open any investment account or a stocks and shares ISA it’s important to think about how comfortable you are with the risk.

From more security with lower potential returns, to higher potential returns but more uncertainty, funds have different levels of risk. Make sure you select the level of risk that works best for you.

You don’t have to put all your eggs in one basket, spread your investments across numerous industries, countries and markets – this can diversify and reduce risk.

Always remember, when you invest in equities (stocks and shares or equity funds) the value of your investment can fall as well as rise. Once you understand the risks involved you can research the best investment accounts or ISAs to suit your needs.

As well as the levels of risk you’ll want to consider the minimum and maximum investment required for different funds and the fees and charges involved – before you make your decision.

Investment funds will be rated by the ISA or fund provider according to risk – from low risk to high risk. But remember all equity-based (stocks and shares) investments carry risk and the value of your investment can fall.

Money invested in equities – stocks and shares and equity markets – can fall as well as rise, so you take on this risk when you invest.

If your ISA or investment account provider falls into difficulties and goes bust for example, this is a different situation – and the money in your account is protected under the Financial Services Compensation Scheme (FSCS) up to £120,000 per person per investment group. But the FSCS does not provide compensation for losses due to poor investment returns.

There are no right or wrong choices when it comes to the type of funds to invest in. It depends on how you feel the investments might perform and the level of risk you are prepared to take on.

Make sure you do your research before investing to understand where your money will be invested and the level of risk. You may also want to invest in particular sectors you have an interest in or fit ethically with your values. It’s also important to understand that previous performance does not guarantee what might happen in the future.

If you don’t feel comfortable having the expertise to make the decisions yourself, dedicated online investment platforms try to simplify the process for you. You can also take on the services of a financial adviser. In all cases you should be aware of any fees you need to pay for taking advice, buying or selling shares or managing funds.

You can often invest from as little as £1, although some investment accounts set minimum levels that could be substantially higher. 

The important factor to consider is that you don’t have to have lots of surplus cash to invest. Investing little and often can see you build a large pot over time.

Stocks and shares represent tiny pieces of a company or several companies that can be bought or sold on the stock market. 

When companies ‘float’, they list on a stock exchange to enable the public to buy and sell their shares. 

If there is more demand for the stocks and shares, the price goes up and the company is given a higher value and vice versa.

Yes, if your investments don’t perform and fall in value then you can lose money. In a worst case scenario, you could lose more than your initial investment.

Don’t panic if this happens in the short term. Investing can be volatile over short periods, particularly if the investments are higher risk. Better returns are often smoothed out over the longer term.

If you’re concerned about losing more money then you could opt for lower risk investments such as bonds or look to save in a cash ISA instead.

Whether you want to invest in a stocks and shares ISA, start a pension or try peer-to-peer lending, it can be quite straightforward to open an account and start investing online.

Do some research first to make sure the type of investment you choose is right for you and choose an account with the right level of expert guidance. 

Some investments have specialists making all the decisions on your behalf whereas others give you more autonomy.

It could also be wise to start by investing small amounts and spreading your money over a range of investments to mitigate the risk.

It’s not possible to give an accurate prediction of the returns you should expect from the stock market because it will depend where you invest and how the investments perform.

Historically, stocks and shares investments have outperformed cash savings, but the past does not predict future outcomes. By spreading your investment over a range of assets and building a diversified portfolio, you can mitigate the risk.

Depending on the stock you choose and the company's performance, you may get an annual dividend.

How much you should invest each month depends on your investment goals and how much spare money you have after you’ve paid for essentials such as food and utility bills.

For example, if you need to save £10,000 for a house deposit over the next three years, you can calculate how much you might need to save in a stocks and shares ISA, although you will need to make an assumption about annual growth.

While working out how much you might need in your pension pot is a trickier equation, by deciding at what age you would like to retire and how much you’ll need to live on you can also gain an idea of how much you should be investing.

One note of caution is that it’s unlikely to be worth investing so much that you leave yourself short each month or you don’t have money for emergency expenses. 

If this is the case any gains you might make from your investments can be wiped out by interest repayments and charges.

There is no reason not to invest if you are unemployed, but you probably want to make sure you have enough cash to cover your day-to-day expenses first. 

This is because any gains you might make from investing will be quickly wiped out should you fall into debt and have to pay high interest rates or penalty charges.

Your pension is likely to be invested in a variety of funds and how much control you have over this will depend on the type of pension you have and your pension provider.

For example, a defined contribution workplace pension may offer limited choice whereas a self-invested personal pension allows you to pick the specific assets you’d like to invest in.

Pension schemes are typically invested in all industries in all sectors globally, with managers of those schemes looking for opportunities to maximise the returns.