Making your money work harder for you.
Investments are a way to store wealth. They can also provide the potential for profit or income.
There are many different types of investment available, including buy-to-let properties and stocks and shares. Investing money in these types of assets has many advantages over holding all of your savings in a bank account.
Contrary to what many believe, you do not need a large lump sum to start investing. However you will need to be aware that unlike cash which is secure, investments carry additional risks as they can fall as well as rise in value.
This guide is to help you find out more about the opportunities you have to invest in the financial markets, and how to get started.
Investing money is important to different people for different reasons - after all everyone has financial goals.
Investing money is important to different people for different reasons - after all everyone has different financial goals. For some people investing is about generating an additional income now, for others it's about saving for the future. Depending on where you are in life, you may be looking to save for a new house, for retirement or for children or grandchildren. You might also be hoping to generate some income to supplement other earnings or pensions.
Cash accounts are one way of saving for the future, and the interest they generate can provide additional income too. However, the interest rates banks are offering are now so low that the interest often doesn’t even keep up with the rate of inflation.
|What £1,000 will be worth in real terms|
If inflation is higher than the interest rate on your cash savings, prices are increasing faster than your money is growing. This means that the real value of your savings falls over time. With this in mind, it’s no surprise people are looking for alternatives.
One such alternative to keeping your money in a cash account is to invest it in the financial markets. Over time, the financial markets have consistently delivered better returns than cash accounts. History tells us that investments have a better chance of producing a favourable return the longer they are left to grow. For this reason, we always encourage taking a longer-term (at least 5 years) view when investing.
Please remember unlike cash, investments carry additional risks and can fall as well as rise, so you could get back less than you invest. If you are unsure of the suitability of an investment for your circumstances seek advice. You should not use past performance as a guide to future returns.
For some people investing is about generating an additional income now, for others it's about saving for the future.
Everyone has different goals when it comes to their finances, but investors are often placed into one of two categories; those who are investing for income and those who are investing for growth. These two groups will make different decisions about where to invest money in order to reach their goals.
Income investors are looking for extra income on top of any existing money they receive. This can be generated from investments that make regular payments, such as shares that pay dividends or bonds that pay interest.
Retirees are typically income investors, using the income to supplement any pensions they might receive. Investors should remember that investment income varies and isn’t guaranteed.
The goal for growth investors is to increase the value of the investment itself, known as capital appreciation or a capital gain. In stocks and shares for example, growth is the result of a rise in the price of the shares.
Someone who has just started their first job and joined a pension scheme might be a growth investor. They are likely to hold their investments for a long time and are hoping to grow the overall value of their investments.
Most investors will combine a mixture of these two strategies. An income investor might, for example, reinvest their income (hopefully resulting in capital growth), or a growth investor might gradually sell their holdings to take an income.
There are many types of investment, each with their own characteristics.
There are many types of investment, each with their own characteristics. Two of the main ways to invest in the financial markets are through shares and funds. It is common to have both within an investment portfolio, but if you are new to investing funds offer some attractive advantages.
It’s never a good idea to invest before you have made sure you are in a strong financial position.
Our advisors usually recommend you have an ‘emergency cash fund’ of between three and six months of normal expenditure before considering any investments. For those in retirement, this could be higher.
You should also avoid investing if you have short-term debts. Many forms of debt, particularly bank and credit card loans, come with high interest payments so it usually makes sense to pay off these debts as quickly as possible.
Investing is a long-term decision, and you should only invest in assets you intend to hold for at least five years.
It is important to take the time to consider why you are investing. Your goal might be to save for buying a house, your children’s future or your retirement.
Understanding what your goals are, and the timeframes you consider to be reasonable to achieve those goals, is essential in deciding on the mix of your investments.
Before investing, you should make sure you are fully aware of the risks. There are always investments that will make you money – but there are also ones that won’t.
Some investors will prefer low risk investments, while others will be happy to take on a higher level of risk. If successful, higher risk investments can potentially offer higher rewards.
All investments can fall as well as rise in value, so you could get back less than you invest. It is important that you do not invest money that you are likely to need to call on at short notice.
Even though there are a lot of things to think about, making an investment decision doesn’t have to be difficult. Hargreaves Lansdown offers you the choice of ready-made portfolios or accessing financial advice to help you make investment decisions.If you’d like to take a DIY approach to investing, we offer lots of additional guides, research and resources to help you improve your investments’ performance.
If you’re unsure of the suitability of an investment for your circumstances seek advice.
Investments can be bought and sold online, through mobile apps, over the phone and by post. This is done through stockbrokers and fund supermarkets, who usually offer three levels of service:
Execution-only is DIY investing. Investors make their own investment decisions and place instructions with a broker, often online, who will then ‘execute’ those instructions. This way of investing usually has the lowest costs.
You can find out more about Hargreaves Lansdown’s execution-only dealing services here.
An advisory service involves taking advice from a financial expert based upon your personal circumstances, attitude to investment risk and financial goals. Your adviser will suggest investments based on your investment goals and financial position.
The cost of financial advice will vary based on how much advice you need and the amount of money you have available to invest.
Discretionary management means leaving the management of your investments to the experts, with all investment decisions being made on your behalf. Discretionary management is suitable for those with larger portfolios and limited time or expertise.
The cost of discretionary management services will depend on how much money you have to invest and the types of investments made.
A common misconception is that you have to have a large sum to start investing. While investing a lump sum is certainly possible, you can also regularly invest smaller sums, known as regular savings.
You can open a Hargreaves Lansdown account with as little as £25 each month through a regular savings plan. Not only is this an affordable route into building an investment portfolio, but it can help to reduce risk.
By investing little and often, you have the potential to smooth out market fluctuations, as investing monthly can 'average-out' the price paid for shares. This means the share price going up and down can actually benefit you as you could end up purchasing more shares, but conversely it should be remembered that if the share price rises and never looks back, fewer shares are purchased via regular savings and investors could have been better served by investing a lump sum.
Many people find themselves with a lump sum at some point in their lives. This could be through inheritance, a bonus or cash from the sale of a home.
Lump sum investing doesn’t have to involve a six-figure amount. When investing in funds, Hargreaves Lansdown accounts have a minimum starting lump sum of just £100, and there is no set minimum for investing in shares.
Now you’re clear on what an investment is, the different types, your options and how to get going, you’ll need to set up an account to start investing. Find out which Hargreaves Lansdown Vantage account is best for you.