Whether you are just starting out, or a seasoned pro – it’s always worthwhile to go over the fundamentals of wealth management. Remember that to have a Stocks and Shares ISA you need to be at least 18. However Junior ISAs are available for parents looking to help out their children with investing.
When is the right time to invest?
This answer is different for everyone and depends on your unique circumstances. Here’s a quick checklist to help you keep track:
Investing might not be a good idea if…
- You owe money, such as outstanding bills or credit card debt
- You plan to take out the investment money in less than five years
- You are not comfortable with the idea that you may get less money than you put in
Investing could be a good idea if…
- You can afford to set aside a lump sum and / or monthly deposits
- You are prepared to leave the money for over five years to give it a better chance to grow
- You accept that there is some risk with investing, and you may get back less than you put in
To find out more about the risk and return of investments, read our FAQ page.
How much should you invest?
This is a very personal question, and the simple answer is: the amount that you can afford and are comfortable with investing. With robo-investing platforms, like Wealthify, you can start investing as little as you’d like.
One of the best things you can do to help grow the value of your investment plan is add small monthly top-ups. This is known as pound cost averaging or “drip feeding” (e.g. monthly direct debits or money from special occasions). This can be as much or as little as you prefer, each deposit can help to even out bumps in the market.
Read more about the power of drip feeding here
What different investments are available?
The investment market has almost as many choices of things to buy as a supermarket. We’ve outlined the basics here:
Stocks and shares
This is when you own a part of a company. There are two main types of stocks and shares investors can own: private and public. Investors are looking to invest in companies which will grow in value in the future. They can also take a slice of the profits, known as “dividends” or re-invest the profits to benefit from compounding returns. Stocks and shares are the most risky assets as there is no guarantee that the company will be successful, and therefore, could make the most profit.
Bonds and debt
When you buy a bond or debt instrument, you own a loan to a governments or company, and typically for this you will receive interest. The more likely a company is to pay back the loan, the less interest you will get. The interest you receive is called a coupon because in the pre-digital world there was a physical coupon attached to a paper bond that was exchangeable for cash once a payment had past.
This type of investing is historically less risky than stocks and shares, so there is less reward, and you are not protected from inflation unless you buy a bond that includes that protection which has an additional cost.
Exchange-traded funds (ETFs)
Groups of stocks and shares are bundled together – known as a fund. This fund is then divided up into little bits (known as shares) and sold to investors. The good thing about buying an ETF is that you will often have really good diversification for your money – as many ETFs contain around 80 companies (these are the types of ETF that we use at Wealthify). This is known as “passive” investing, as your investments will passively ride the market ups and downs. Some examples of ETFs are the FTSE 100 or the S&P 500. One potential positive is that it will never dip below the market performance.
Mutual Funds
An active mutual fund is a group of investments which have been cherry picked by an investment manager. The fund is then divided up and sold to investors. The manager can still amend the selection of investments when needed. The advantage of this is that you have excellent diversification, as well as investments which are selected to outperform the market (known as “active investing”). The downside is that the fees are normally higher.
A passive or “tracker” mutual fund is more similar to an ETF in the way that it follows the market. It is an exact reflection of the market it is tracking, so it will not make profits above the market rate.
Cash
A very important part of a portfolio is having a small amount of “liquidity”, which means spare cash to buy more assets if a good opportunity comes up.
Of course, there are many more investments available (known in the investment world as “asset classes”). For example, if you are interested, you could also invest in physical commodities like oil and gold, real estate or different currencies.
You can read more about how our investment team at Wealthify manage your money.
What are the risks?
Of course, when it comes to investing there are no guarantees and you may get back less money than you put in. Finding the right level of risk for you is important, so that you feel comfortable with your investment plan. Here at Wealthify, we have a range of different plans available to suit different objectives and risks.
To find out more about the risk and return of investments, read our FAQ page.
Back to school …
Now that you have refreshed yourself on the essentials of investing, you can read more about how to explain investing to your children or getting your teenager onboard with good money management habits. Talking to your children early about how to use their spare pocket money or salary helps with numeracy skills, as well as preparing for later in life.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
