investments
Investing can give you strong returns over the long-term and it’s easy
to start once you get the hang of the basics.
Frequently Asked Questions
Over the long term, investing can be a win-win for everyone who gets involved. Here's what you need to know.
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The General Investment Account that will do more with your money
Look at it this way.
The FTSE 100 Index® contains the biggest 100 UK companies you can invest in.You can often take investment profits like this as ‘income’ in the form of ‘dividends’. Retirees often prefer income as a way to supplement their pension. You can also invest your money for ‘growth’. Also known as capital appreciation or a capital gain, younger adults may invest over the long term to grow the size of their investment.
No – you want to hold both investments and savings so you’re not relying on one or the other. It would be prudent to save up enough money to cover any unexpected expenses before you start investing. You don’t want to dip into your investments for spending money if you can help it.As you’ve just seen, investments offer a bigger chance of higher returns over the long term. But why?It’s all because of risk.
As with many things in life, the more risk you take, the bigger your potential reward. Likewise, the less risk you take, the smaller your potential reward.
Savings are where most people start, putting any spare cash to one side to build up a short-term safety fund in case of emergency. This money is often held in deposit accounts in banks or building societies, where the rate of interest will be variable or fixed. Penalties might apply if money is withdrawn before the end of the period. The rate of interest paid on money held in deposit accounts tends to be relatively low but the amount of cash you have shouldn’t fall in value. Remember inflation reduces the future spending power of money.
Investments are medium to longer term savings where varying amounts of risk can be taken. Investing is about putting money away either as a lump sum or regularly, providing the opportunity for your savings to grow in value over the long term. There is a wide choice of investment types each with their own pros and cons. For example, investing in riskier investments, such as the shares of companies in less developed markets, means that there could be more bumps along the way, although there is more potential for higher returns. Charges might also apply to investments. Remember the value of investments can go down as well as up and you may get back less then was invested.
Once you know what you want the money for, you’ll find it easier to choose how long to invest for.
- Want to buy a house? You could invest between now and five years and potentially end up with a sizeable contribution for your new home.
- Want to send your child to university? Consider a Junior Individual Savings Account. Your child will be able to withdraw the investments as cash when they turn 18.
- Want a comfortable retirement? Think about investing a portion of your earnings every month from now until you retire. Any potential profit will go towards your pension
You’ll find out how to prepare with savings, debts and long-term goals.
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For instance, professional fund managers will pick and choose investments so you don’t have to.
Think of a fund like a shopping basket containing the value of many investments. It could be a sensible way to manage your risk.
A fund may track the value of shares in global companies, government bonds, commercial real estate, gold and more.
Plus, fund managers undergo training and study for qualifications from the Chartered Financial Analyst Society.
This means your fund manager is qualified to manage money as well as being held to the highest of industry standards, as laid out by the Financial Conduct Authority. The FCA is a financial regulatory body in the UK which aims to make markets work well for individuals, businesses and the economy as a whole. As you can see, funds help make it quick to start investing even if you don’t have much experience yourself. Even better – you only need a small amount of money to invest in a fund.
Just like not putting all your eggs into one basket, you won’t have all your money backing one company that could suddenly fall in value.
You can also invest little and often to help smooth out the zigs and zags of the market. More on that in a minute.
Another good way to manage your risk is to invest for long-term goals instead of short-term ones.
For instance, invest for a goal at least five years from now. That could be anything from a house deposit, university fees for children or simply to grow your own pension pot.
If your investment drops in value in the short term, you’ll be less likely to panic sell before it has a chance to go up in value again.
To sum up, risk may sound scary at first. But it’s the reason you could get a higher return on your money to begin with.
When you see it that way, risk is a good thing, so long as it’s carefully managed. An easy way to manage your risk is to put your money into a fund.
This portfolio is for those who are comfortable taking some risk to achieve their investment goals. The majority of investments within this portfolio are in growth assets including Equities (61%) and Property (5%), and the remaining 34% is invested in defensive assets which are Fixed Interest (31%) and Cash (3%). This asset allocation aims to achieve somewhat of a balance between security and return. Although the portfolio will be subject to some volatility, the asset weightings will assist in limiting the extent of any great changes to the investment value. Over the longer term, this portfolio seeks to provide greater capital growth than Portfolio 1, but less risk and volatility than Portfolio 3