1. Review your goals
It’s well worth taking the time to think about your goals, what you really want from your investments. Knowing yourself, your needs and goals and your appetite for risk is a good start.
2. Consider how long you can invest
Think how soon you want your money back. Different goals have different time frames and will determine the risks you can take.
3. Make an investment plan
Once you know your needs and goals and assessed your risk taking capability, draw up an investment plan to identify the types of product that are suitable for you. A good rule of thumb is to start with low risk investments such as Cash ISAs. Then, add medium-risk investments like unit trusts if you’re prepared for higher volatility. Only opt for higher risk investments if you’ve built up low and medium-risk investments. Even then, only do so if you are willing to accept the risk of losing the money put.
4. Diversify across types and sectors
It’s a basic rule of investing that you need to diversify and accept more risk for improving your chances of a better return. But you can manage and improve the balance between risk and return by spreading your money across investment types and sectors whose prices don’t necessarily move in the same direction. It can help you smooth out the returns while still achieving growth, and reduce the overall risk in your portfolio.
5. Decide how hands-on to be
If you want to be hands-on and enjoy making investment decisions, buying individual shares is a good option but make sure you understand the risks. If you don’t have the time or inclination to be hands-on or if you only have a small amount of money to invest, then investment in funds such as unit trusts and Open Ended Investment Companies (OEICs) are good options. With these, your money is pooled with that of number of other investors and used to buy a wide spread of investments. If you’re unsure about which investment or types of investment to choose, get financial advice.
6. Check the charges
If you buy investments, like individual shares direct, you will need to use a stockbroking service and pay dealing charges. If you decide on investment funds, there are charges, for example to pay the fund manager. And, if you get financial advice, you will pay the adviser for this.
Whether you’re looking at stockbrokers, investment funds or advisers, the charges vary from one firm to another. Be clear about all the charges before committing your money. While higher charges can sometimes mean better quality, always ask yourself if what you’re being charged is reasonable and if you can get similar quality and pay less elsewhere.
7. Investments to avoid
Avoid high-risk products unless you fully understand their specific risks and are prepared for them, while some investments are usually best avoided altogether.
8. Regular review
Regular reviews, such as annually, will ensure that you are keeping track of your investments and adjust your savings as necessary to reach your goal. You will get regular statements to help you do this. However, don’t be tempted to act every time prices move in an unexpected direction. Markets rise and fall all the time and you need to take that in your stride if you are a long-term investor.