As a first-time investor, the prospect of investing your money can be daunting – especially if you don’t really know what to expect. Here are a few things to think about if you want to start investing in stocks and shares.
When you invest, you’re taking a risk with your money. So before you begin, you should ask yourself the following questions:
You’ll need to review your existing financial situation before making an investment, to make sure that you’re in a position whereby you can weather any potential storms. Although the hope is that you’ll turn a profit, there’s always a chance that you won’t. You should make sure you’ve paid off any debts, including credit card debts and loans, and build up some savings first.
This is important, because it will dictate how you manage your investments and may determine when you choose to sell them.
Investment works best when you have a long-term goal in mind: you may want to put money into an investment account like an ISA, for example. But if you’re investing to make enough money to cover a big purchase, such as a new car or a holiday, then investing may not be the best option for you.
As we’ve already mentioned, investing comes with certain risks and there are no guarantees that you’ll make returns. Markets can be uncertain, and you’ll need to be able to manage this from an emotional standpoint when faced with market volatility.
If you’re completely new to investing, it’s worth making lower-risk investments to start, even though these usually give you lower returns.
Once you know you’re happy to start investing, follow the advice below to get the most out of your investment journey:
Diversification – whereby you invest in a range of assets – allows you to stabilise your portfolio, lowering your exposure to risk. It’s better to invest in different companies or industries, for example, as this can help to mitigate any potential losses and maximise returns.
ETFs are a good way to do this, because you can buy a basket of stocks and gain exposure to a pool of investments. They’re a good option for first-time investors, as they’re generally cheaper to buy than other investment types like mutual funds.
It’s important to remember that being invested in the market is rarely a smooth ride. There are plenty of ups and downs, and it isn’t unusual for periods of strong performance to be followed by periods of negative growth or stagnation. One day you may find that your portfolio has jumped, and the next moment notice that it’s fallen again.
The ups and downs of the market are precisely why long-term investors get rewarded: no risk means little chance of a reward.
On a daily basis, fluctuations of +/-2% are routine, often with no rhyme or reason. Investments can spend a week going one direction, then spend the next few days going the other way with no clear explanation. Bigger movements of +/- 3-4% are also common, particularly if there are relevant news reports or rumours (which is often referred to as ‘market noise’).
The best investors are able to block out the noise and focus on the long-term, which is exactly what you should try to do.
Investing is a continuous process and the performance of your investments will change over time. As such, it’s important to reassess your investments to make sure they’re still working for you.
Knowing how much to invest is likely one of the main questions you’ll have as a first-time investor. The answer depends on your investment goals and tolerance to risk. In short, your personal circumstances will dictate how much you choose to invest.
It can be beneficial to invest little and often, rather than investing huge lump sums – especially if you’re new to investing. Although investing large amounts can help to maximise returns, making regular investment – particularly in volatile times – may help to manage risk. Spreading your investments out in this way can be a good option for beginners who may be more cautious.
At CIRCA5000, you can make one-off or monthly top-ups, as well as round-ups. The minimum top-up you can make to any CIRCA5000 account is £5. If your round-ups in any given week are less than £5, then the balance will carry over to the following week and continue to do so until the minimum amount is collected.
There’s no maximum investment amount if you have a General Investment Account (GIA) with us, but you can’t invest more than £20,000 into a CIRCA5000 ISA, in line with UK ISA rules.
When investing your capital is at risk. You should carefully consider whether opening a CIRCA5000 pension or transferring your old pensions to CIRCA5000 is right for you. Please note that tax rules and reliefs depend on your personal circumstances and might change. CIRCA5000 does not provide financial or tax advice and you are responsible for your own tax reliefs/payments.