Where Should I Invest My Money?
Guy Myles, 8 April 2016
You want to invest - here's how to get started.
In this article you'll learn:
- Who should consider investing and how best to invest money.
- How your personal circumstances may affect your investment choices.
We've all heard the stories: rags-to-riches tales of fortunes being made by investing in some faraway company or Foreign Exchange markets. They retire at 40, and we all wish we could do the same.
While we can't promise that you'll retire at 40, we do believe that sensible investment planning can help secure your financial future. So who should consider investing? If you have some money to invest, it might be time to get started, but everyone's circumstances are different and needs vary widely, which is where expert financial advice could help. Let's take a look at some examples and how we might build the right portfolio for each situation.
Tom, 32 years old
- Build funds for his young family
- Start saving for his pension fund
Marital status: Married with 2 children, aged 1 and 3
Job: Software analyst
Financial assets: 4-bedroom house (mortgaged), a stocks and shares ISA, £10,000 in a savings account
In the short term, Tom is looking to earn some extra money to help look after his family. Despite retirement being a long way off, he knows he should start saving for a pension now. He likes the idea of 'playing the stock market' - he's already been exposed to some of this through his stocks and shares ISA. He's never approached a financial adviser before, but he's considering it - building and managing an investment portfolio can be daunting.
Steve, 56 years old
- Wants to supercharge his long-term investments to secure his pension pot
Marital status: Married with 4 grown up children
Job: Sales director for a manufacturing company
Financial assets: Large country house (mortgage almost paid off), £100,000 in a stocks and shares ISA, plus a £400,000 pension pot that will mature when he turns 65.
Despite paying for his children's university fees, Steve has plenty of savings. But he knows he needs to make these funds stretch further to pay for the comfortable retirement he and his wife want. Steve has always bought and sold shares, receiving reasonable returns, but he wants to take it to the next level, perhaps considering a long-term savings plan. Steve recognises that he may need advice to help guide his investing decisions.
Anne, 78 years old
- Retired Anne has always saved cash, but now she wants to make bigger gains, but at low risk
Marital status: Widowed, 3 adult children
Salary: Retired, lives mainly on a small combined private and state pension income
Financial assets: Suburban semi-detached home, no mortgage. Cash savings of £120,000, but with interest rates low, this sum is not earning what it could.
Her whole life, Anne has been a prudent cash saver. But having seen her children make gains by investing their own money in bonds, stocks and property, she is cautiously looking to make her money work harder. Anne wants regular payments, not long-term lump sums. But Anne's watchword is caution - she's not one for risky investments.
How could they invest their money?
Each with their own goals and circumstances, here are just a few of the basic investment types Tom, Steve and Anne could consider as the building blocks in their portfolios:
You might already have your money in a standard savings or ISA (individual savings account). These are available to almost anyone, and are a low-risk approach to saving money and making small returns.
Governments and companies can raise money by issuing bonds - you give them money and in return they pay you interest, and eventually the full borrowed amount. Low-risk, and regular returns.
Equities, stocks, shares, whatever you want to call them, the ups and downs of the world's stock markets is one of the driving forces of the global economy. With the right insights, there are major gains to be made - but also losses to avoid.
From private ownership and buy-to-let investments to investing in commercial properties, property can be a useful part of a diversified portfolio, but you need perseverance, skill and experience to make it pay.
Suggestions for Tom, Steve & Ann
Each person faces different challenges and is likely to need a very different portfolio of investments to meet their needs. An important factor to take into account is age - normally the older you get the less risk you would take with your portfolio. In simplistic terms it would be normal for Ann to hold more in cash savings and bonds than Steve who is likely to hold more than Tom.
Unfortunately, it isn't as simple as just buying higher and lower risk investments in different proportions. Every portfolio should be constructed to minimise risk and the right blend of assets and tax wrappers requires individual analysis. Another example of where professional financial advice can help.
Don't forget the golden rules of investment!
- Keep your costs as low as possible.
- Invest with discipline and don't chase the latest fad or run away from recent losses.
- Create an investment plan to give you best chance of reaching your goals.
- Considered all of the tax implications of your investment, there are pitfalls as well as opportunities.
Yes, I want to invest my money and start targeting gains!
These are just three simple examples, and everyone will need something slightly different to meet their needs. Investing can be time-consuming and complex but it does offer the opportunity to target growth at levels not achievable through bank accounts.
Call Flying Colours on 0333 241 9900 to speak to our expert financial advisers about how we could help you.