Does anyone else think that school did not teach us nearly enough about managing our finances? For those of us trying our best to “adult”, we’re aware that saving is a good thing. However, what would be nice is if the money that is sitting in your bank account was actually growing.
While most savings accounts offer some form of interest, we’re really not getting much of a return. An area that you may want to look into instead is investing, but where should you start?
What is investing?
Investing involves buying stocks and shares with the aim of selling them later to make a profit. In some instances, it is a good alternative to putting your money in a savings account or ISA. The return on your investment will be more than you could get in interest from your savings account when done smartly. However, it’s important to be aware that you are also at risk of losing money when you invest it.
Why should you invest your money?
The current economy is a low-interest one which means that savings accounts aren’t offering you much of a return for leaving your money with them. If you want to make more than pennies from your savings, investing in the stock market is offers better opportunities. The historical average stock market return is 10% according to NerdWallet. It’s easy to see why then why investing is an attractive option for many.
Investing tips for beginners
So, we know that investing can offer you some good returns, however, it’s important for you to know your stuff before getting started. Let’s take a look at where to begin:
Step 1: Open a Stocks and Shares ISA
Everyone over the age of 18 in the UK has an annual ISA allowance (currently £20,000). You don’t pay tax on a Stocks and Shares ISA and therefore won’t pay tax on the profits you make. You can explore some Stocks and Shares ISA options here.
Step 2: Consider how much you want to invest
If you don’t already have some cash savings, then investing isn’t something to go into. Remember, there’s no guarantee that when you invest in the stock market the value of your investment will go up. It could also go down and you don’t want this to leave you with nothing. Only invest extra money that you can afford to lose.
Step 3: Do your research
Do not invest your money blindly in the stock market. Before investing in a stock or share you should conduct thorough research into it. The more information you have, the better a position you are in to make good decisions where you are less likely to lose money.
Step 4: Start small
While you’re finding your feet and getting to understand how investing works, only invest small amounts. Even with a few pounds to invest you can see your money grow.
Step 5: Commit to five years
Investing isn’t a way to make quick money, so if you are not prepared to leave your money there for a minimum of five years it may be better to stick with a savings account for now.
Step 6: Diversify your portfolio
Building a diverse portfolio should help lower your potential risk. You may invest in a range of companies from different industries. You could also invest in Exchange Trade Fund, such as the FTSE 250 or the S&P 500.
Let’s get started
Are you ready to start growing your money? The sooner you start, the longer you can invest for which means you have more potential for great returns. You’re never too young to start investing if you can spare some money each month. Just make sure you do your research and be sensible.