Are you ready to invest? A checklist

Key takeaways

• Make sure you have savings to fall back on first

• Only invest money you can leave invested for several years

• Be comfortable with the fact that investment values can fall

• You should clear any debts such as loans or credit cards before investing and never borrow to invest

Questions to ask yourself...

1. Do you have savings to fall back on?

Easy-to-access savings can help cover unexpected costs – like your boiler or car breaking down – while investing is usually better suited to money you won’t need straight away. Many people aim to keep around three to six months’ essential expenses in savings before investing.

2. Can you leave this money invested for at least five years?

Investment values can rise and fall in the short term. Over time, investments have more opportunity to recover from these ups and downs. If you think you might need the money sooner, saving may be a better fit.

3. Could you afford for the value to fall – even for a while?

All investing involves risk. The value of your investments can fall and you could get back less than you put in. It’s important you’re comfortable with that possibility.

4. Do you understand how risk works?

Different investments carry different levels of risk. Spreading your money across a range of investments can help manage that risk, although it doesn’t remove it completely.

What to keep in mind

Investing tends to work best when it fits around your wider financial situation and aspirations. You don’t need to start with a large amount – many people begin with smaller sums and learn as they go. In fact, starting early by investing little and often can beat investing a larger amount later, thanks to the power of ‘compounding’ – where the returns your investments earn begin to generate returns of their own.

As you begin your journey, remember that short-term ups and downs are normal. Staying focused on your long-term goal can help you avoid making decisions based on temporary dips.

Not sure how to think about risk?

Understanding risk is one of the most important parts of investing. The next module explains how risk and return are connected: Understanding risk.

This information is for education only. It’s not financial advice or a personal recommendation.

Moneysupermarket.com Investments Limited is an appointed representative of P1 Investments Services Limited, which is authorised and regulated by the Financial Conduct Authority (FCA FRN 752005).