If you’re looking to give your money more potential, then you may have considered investing. There are many different ways that you could do this, from choosing your own individual stocks to selecting funds, or even by having your investments managed for you by digital investment platforms – meaning you barely need to lift a finger.
In this guide, we’ll cover off the basics of investing, share why people invest, explain how to invest in the stock market, and outline what the risks are.
Why do people invest?
One of the main reasons that people choose to invest is to give their money more potential to grow. However, it’s worth bearing in mind that this potential comes from unpredictability in how much the price of investments move. That means that although your money could make more money, there’s also a chance that it could go down as well.
When investing, people generally want the price of their investments to increase so that they can then sell them on for more than they originally paid for them. This is called the ‘buy low, sell high’ technique, although it’s much easier said than done as nobody knows for certain the price that any particular investment may be in the future.
But people also choose to invest in stock that pays dividends – this is either in the form of a cash payment or in more stock, so essentially, they’re rewarding you for being a shareholder. Having these payments could give you a passive form of income, or it could simply help you to increase the value of your investments.
Is investing guaranteed to get returns?
No. With investing you’re taking a risk with your money, so your returns aren’t guaranteed. However, for most people the aim is to try and beat both inflation and interest rates over a certain time period by investing.
When you invest, your money could benefit from a number of different factors, depending on what you’re invested in, which could help it to grow further. If you’re invested in shares, then your money could benefit from share price movements and dividend payments. If you also choose to invest in things like corporate or government bonds, your money could even earn interest.
What can I invest in?
When people think of investing, they typically think of the stock market. However, shares are only one type of thing that you can invest in. Depending on who you’re talking to, there can be many different types of asset class, but typically there are five different ones:
1. Stocks and shares (also known as ‘equities’)
2. Bonds (may also be called ‘fixed income’)
3. Cash equivalent (for example, foreign exchange)
4. Property or real estate
5. And commodities (this includes everything from gold to corn)
There’s a principle in investing called ‘diversification’, which is exactly what it sounds like – having a diverse range of investments. This means that you could choose to mix up what you’re invested in with the aim that if one asset class has a bad month, then a different asset class could have a good month to balance out your overall performance.
The aim of diversification is to help reduce your risk when investing.
How do I start investing?
Investing can be as simple or complicated as you want it to be.
You could use a robo-investing service. This could be a good option for you if you don’t have enough time to do research, monitor the markets and analyse trends and news yourself. Instead of doing all the heavy lifting, you’d simply choose how much risk you’re willing to take with your investing, then decide how much money you’d like to invest. Robo-investing services will then pick and manage your investments for you. Check all the fees and minimum investments when looking around.
You can start investing with as little as £1 through Wealthify, and you can withdraw anytime with no fees; Investing with Wealthify | Stocks & Shares | TSB Bank.
For those investors who’d like to do it themselves, then you could choose to take a DIY approach to investing by picking, buying, and selling exactly the stocks you want, when you want. This approach does need more commitment, and you’ll need to have a better level of understanding of investments to make sure that it stays within the level of risk you’re willing to take.
The DIY approach may need you to open a brokerage account, and as with robo-investing services they can come with varying levels of trading commissions and account fees. It’s important to keep an eye on these as it can eat into any profits you make, so be sure to compare different platforms.
How much money do I need to start investing?
Investing has always been thought of as something you do when you’re rich, but that doesn’t mean that you need to have a lot of money to get started. In fact, with robo-investors like Wealthify, you could start investing with as little as £1; Investing with Wealthify | Stocks & Shares | TSB Bank.
However, depending on your approach with DIY investing, you could need to invest significantly more. This will vary from investment to investment and could cost pence or thousands.
How do I know if investing is right for me?
Although investing is available to anyone, it may not always be the right option or the right time for everyone. Whether or not investing is right for you will depend on your circumstances.
For example, investing might not be for you if you’re in debt or your total outgoings exceed your incomings. Before you decide to invest, you should consider your circumstances and risk appetite, such as, if you can’t afford to lose any of the money you put in or if you may need instant access to it.
It’s important to remember that withdrawing from your investments isn’t the same as taking it out of a savings account, as your investments will need to be sold and this can take some time to do. However, if you have money that you can afford to set aside and you’re prepared to leave it for the long term, then there are many benefits to investing.
TSB acts as an introducer for the investment products (Stocks & Shares ISA, General Investment Account, Junior ISA) of Wealthify. There are other investment service providers available.
Neither TSB or Wealthify give you any advice or recommendations about these products - it’s up to you to decide whether the product is right for you.
TSB and Wealthify operate on a 50/50 revenue share arrangement of the management fees after costs. There will be no additional costs for you, the customer. All fees are the same if you went direct to Wealthify. Both TSB and Wealthify are authorised and regulated by the Financial Conduct Authority.
Please remember, investments are designed for the long term and unlike TSB’s savings products, the value of your investments can go down as well as up, and you could get back less than you invested.
The tax treatment of your investment will depend on your individual circumstances and may change in the future.