investing money and is it right for me

Today I want to cover the basics of how to start investing money. Lately the term has been gaining a lot of popularity. As of start of COVID more and more people are looking for ways to start investing. I will cover the key basics to consider before starting to invest. However, I will go into more depth on these in a separate posts.

is inveSting right for me?

When it comes to investing there is unfortunately no right answer. Foremost you need to do what is and feels right for you personally. Big factor to consider is your personal risk tolerance. The worst thing you can do is have many sleepless nights due to investments you’ve made.

At the same time, I believe everyone should consider some form of investing. There are many different types of investments available and all of them will have varied levels of risk linked to them.

I would also encourage you to decide what is it that you are investing for. The list of options is infinite. It can be buying your first property, saving for a dream car or potentially your retirement pot.

Based on your end goal it will be easier to understand the term of your investments and the amounts required to be invested. Even something as big as a purchase of a house can be broken down into smaller milestones. Investing is there to help you achieve these.

It is also worth considering how long can you stay invested. All investments can lose value in short periods of time. To minimise this risk you need to give your investments time.

what types of investments are there?

There are many different options when it comes to investment types. You can invest in shares of companies, commodities, property, indexes tracking the total market, bonds, cryptocurrencies, collectibles and the list goes on and on….

One thing to keep in mind is that the above will vary in terms of their potential returns and risk associated with it. The more fluctuation the asset has the higher the risk associated with it.

When you invest into a government bond the risk is fairly small. It is only a full government default that can erase your investment. These types of investments will at the same time have the smallest returns.

In my personal view, cryptocurrencies are extremely volatile. These can be exciting over short-term to be used as a trading tool rather than investing. I know there are a lot of people who would disagree with this statement. The upside on these can be phenomenal however the risks you’re taking are really high as well.

Historically, indixes tracking the total market have performed extremely well. If we take S&P 500 as an example, it has delivered over 10% annual return for the last over 100 years. There are periods of time however when the returns can be significantly smaller or even negative. This is where the period of time you can stay invested for becomes really important.

There is a lot more I can share on this topic so I will write a separate article on different types of investments and their pros and cons.

Risks to consider with investing your money

The biggest risk to keep in mind is that all investments have risk associated with it. One day your investments can be up, the next day they can be massively down.

I would only encourage you to invest the amount that you can afford to lose. Never borrow money for investment or trading purposes.

how to choose an investment platform

There are many different platforms available for you to choose from. These start with more old school platforms available through your bank or investment institutions. There are a lot of new kids on the block as well. A lot of online apps and platforms offer investment options.

One thing to be confident about is the credibility of the platform you are investing through. Make sure your broker is fully protected, accredited and has good reviews.

The biggest consideration when it comes to investing platform is the option to open an ISA. These can save you a lot of money over time. If you aren’t sure what an ISA is – you can learn more about it here.

what fees to consider

Some of the newer platforms will offer you fee free trading. The way these platforms make money is through the spread between buy and sell. The key to research with these online platforms is the ISA availability.

Some of the more established banks and investment platforms will charge a fee. These fees will vary and should be a key consideration if you choose to invest with a better known bank or an investment company. Some of these charge a per transaction fee plus a monthly or annual platform maintenance fee.

If you are looking to invest for a long-term than you should look for smallest possible ongoing fees. A one-off fee you would pay is only gonna hurt you once.

setting up a direct debit

Humans have a tendency to spend all of the money they earn. One way to overcome that and start investing is by setting a direct debit. You can set the direct debit on the same day you usually get paid. In this way you won’t even notice that the disposable income you have is less than it was.

You can also do it manually however there is more risk that you will start missing these every now and then. Consistency is one of the key success leavers when it comes to investing.

compounding

Even the smallest investments can start adding up over time. If we consider a market with 10% annual return. In this market you are investing £100 every month.

Over five year period you would have invested £6,000. That 10% interest should be equal to £600. However due to compounding it actually is more. Your interest is earning you interest in long run.

The actual value of your investment will be just under £7,800. The fact that you would have done it consistently would have given you an extra £1,200 worth of returns. In fact, if you think of doing the same for 10 years rather than 5 your return would be a total of – £20,600. There is a point where your earned interest starts earning you more interest than you actually keep toping your account by.