Are you an investment beginner? Here are 8 simple tips to get you started

Investing money can be a crucial factor in securing the lifestyle you want in the future.

With the Office for National Statistics confirming the Consumer Prices Index (CPI) was 10.1% in March 2023, investing, rather than simply putting your money in a savings account, can be advantageous as the potential returns may help offset the long-term effect of rising prices.

In effect, your investment strategy can be seen as the engine that drives your financial plans. As a result, it can be useful to have at least a working knowledge of how investments work, and some of the common pitfalls to avoid.

With a 2022 study from the World Economic Forum confirming that 70% of people would invest if they had more in-depth financial education, read on to discover some simple investment tips that could help you develop your own investment strategy.

1. Have an outline plan in place before you start investing

A key first step is to decide how much you’re going to invest. This may be a lump sum of money you already have in savings, or affordable monthly contributions.

It can then help if you have an idea of what you’re investing for. Saving and investing for a defined purpose will give you an idea of your investment time frame.  

For example, you may want to set money aside to invest to cover the cost of education fees, or to help your children get on the property ladder

However, even if you don’t have a specific intended use for your investment fund, that shouldn’t deter you from setting money aside with the aim of growing your wealth.  Having a good-sized investment portfolio can give you valuable peace of mind as you go through your financial journey.

2. Remember the golden investment rule

There are many investment sayings and adages. One of the most common is “it’s time in the market, not timing the market”. This is often described as a “golden rule” of investing.

Most investment professionals will recommend that you look to invest for as long as possible to reduce the effects of short-term market volatility.

Market fluctuation is a natural part of investing in stocks and shares and affects many types of investment. To avoid this having a detrimental effect on your investments, you should, ideally, look to invest for at least five years. Ultimately, the longer you can leave your money invested, the better.

3. Use your Individual Savings Account allowance to invest your money tax-efficiently

There are a variety of different investment vehicles where you can invest your money. These include pensions, stocks and shares, investment funds, and investment bonds.

If you’re just starting on your investment journey, a good option to begin with is a Stocks and Shares Individual Savings Account (ISA).

For the 2023/24 tax year, you can invest up to £20,000 a year into an ISA. They are easy to set up and manage and are also tax-efficient, as any growth on your ISA investment isn’t subject to Income or Capital Gains Tax. Furthermore, you won’t pay any tax when you come to take the money out.

You’ll find that many ISA providers will offer a range of investment options, including individual shares and investment funds.

4. Know when you shouldn’t be investing your money

It may seem counter-intuitive in an article about investing your money to tell you not to. But it’s important you’re aware that there are times when it makes sound financial sense to put your money to better use.

These could include:

• If you have substantial unsecured debts, you should consider clearing these before investing
• If you don’t yet have an emergency fund in place, building this should really be a higher priority for you.

Additionally, you shouldn’t invest any money you think you’ll need to access within five years.

Read more: 5 top practical money tips to help reduce and manage financial anxiety

Understand the balance between risk and reward

One of the keys to your investment strategy is determining how much risk you are prepared to take to achieve your goals.

This consideration is often referred to as “risk versus reward”.

In very simple terms, the higher the risk attached to an investment fund or share, the greater your chances of enjoying higher growth, but alongside that, the greater the chances of suffering investment loss.

As a result, it’s crucial to be clear at the outset what your attitude to investment risk is, so your portfolio can reflect that.

Note that your risk tolerance can change during your lifetime, so it’s important to regularly review how your portfolio is invested to ensure it continues to meet your objectives.

5. Recognise the power of dividends

According to an article on the Nasdaq website, Albert Einstein described compound interest as the “eighth wonder of the world”.

Compounding is the concept whereby you get growth not only on your original investment, but on the interest you earn on those investments as well. When it comes to investing, it’s compounding, through the accumulation of dividends and interest, that can really help you grow your fund.

Dividends are effectively a distribution of company profits allocated to shareholders of a particular company share. Dividend payments are based on the number of shares you hold, rather than the value, so by using your dividends to purchase more shares, you’re effectively increasing your investment potential with each declaration.

As a result, even if specific shares have lost value, when re-investing dividends, you may benefit from buying more shares at the lower price. And the shares you add will attract further dividends in the following year, and so on.

6. Don’t put all your investment eggs in one basket

There are many different options for how and where to invest your money. These are commonly known as markets, sectors and asset classes.

By diversifying your investments across different sectors, you reduce the risk of losing money in the event of a certain market sector suffering from a sudden downturn.

In this event, only a small proportion of your portfolio will be affected, and it’s possible that any losses in one particular sector could be offset by gains in another.

7. Don’t over-manage your investments

Try to avoid constantly checking the value of your investments. This will reduce the temptation of meddling with your portfolio, and potentially overreacting to short-term market volatility.

By constantly chopping and changing your investments, you may well miss out on investment growth, with no guarantee that whatever you switch to will provide a greater investment return.

More often than not, the best thing when it comes to your investment strategy is to do nothing and let long-term performance smooth out the effect of short-term fluctuation.

Get in touch

If you’d like to discuss investments and how to develop your own strategy, please get in touch.

You can email info@aspirafp.co.uk or call us on 0800 048 0150.

Please note

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation to any investment or retirement strategy. You should seek independent financial advice before embarking on any course of action.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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