A Basic Guide In Investing Your Money
Life as an investor is never easy, but thanks to Brexit it just got a whole lot tougher. That’s because the outlook for the UK and world economies is now more uncertain than ever. This makes it difficult to know what to do with spare cash in order to maximise returns while still keeping risk within an individual’s comfort zone.
Before you do invest, it’s crucial to assess your finances and make sure that you have the necessary precautions in motions.
Holding cash for long periods in your savings account has historically been an unsuccessful strategy as inflation eventually will eat into your returns in real time
Although inflation is low at the present time, it could move higher due to Brexit and a weaker sterling causing imports to rise in price.
But if you successful invest your money, you have much greater potential for growth than you do if you leave your money in a savings account. When making a financial decision of this magnitude, it’s important to consider these following questions:
- Do you have a financial aim?
The world of investments can seem complicated and beyond our reach, with some people mistakenly believing only the rich can afford to dabble in the stock market, but that simply is not true.
What is true though is that you need to set clear goals: Do you want to multiply your money? Or do you just want a regular income? Is there a set amount that you want your money to grow by or a minimum income that you need?
Having set goals will help you to decide how much risk you need to take to achieve what you want. You may not have a particular reason for investing, but try to ascertain exactly what you want your money to do.
- Do you have a time frame?
Once you have your goals in place. Give yourself a timeframe of how long you want to reach them. This will give you a clear idea of the kind of rates of return that you will need from your investment and whether or not you have realistic goals.
Also, take into account factors such as your age and health. If you have short terms goals then perhaps you should stick to cash savings, because if you have investments that fall in value, you will not have enough time to recover your losses.
Five and more years are appropriate for investments, but some investments become less appropriate the older you get. You have less time for your money to recover if it falls in value and, if you’re retired, your capacity to earn is diminished.
- What is your relationship with risk?
Understanding the risks, you’ll encounter when investing and deciding how much risk you are willing to take is essential.
Even if you have a long time frame, and a healthy reserve of cash to fall back on, but you don’t think you would sleep at night if the markets became volatile, a high-risk approach probably isn’t for you. If you take a high-risk approach, you may reap the highest returns. But at the same you must be prepared to lose some, or even all of your savings.
- Are you being realistic?
Be realistic about how much you can afford to invest. Assess all of your liabilities, like debts, pension, savings and living costs, to see how much spare cash you have to invest.
Investing works best when you can take a long- term view, so stay in the money if you think you might need the money in the next five years.
- Seek financial advice
Many investors make their own decisions, without advice. But this approach is time- consuming and requires knowledge and confidence.
Alexander and Co offer financial advice and will be able to talk through all the points raised above and ensure that your investments are tailored exactly to your needs.
