Preparing to invest
The first steps
Before you invest, an important part of the financial planning process is to look carefully at your current financial situation. In order to do this you need to be aware of what assets, liabilities, income and expenditure you have so that you are clear how much you can afford to commit to investment.
Below are some tips for getting started:
Investing in the market
Even though the purpose is that your savings grow, investing in the market carries more risk than simply putting your money in a bank. By investing in the stock market directly or through investment companies, you risk losing your money – but there is greater potential for your money to grow over the long term. The purchasing power of savings in a bank risks being eroded by inflation over time, or growing only very slowly; but it does afford security of capital by comparison with stock market investment. Investment companies can play an important role in your portfolio.
Consider your liabilities
You should think seriously about investing money in equities if you are in a lot of debt. Most debts come with interest payments, so they can be a drain on your finances. High risk investment is not suitable as a way of getting out of debt.
Have some secure savings
Before you invest, make sure you have some "rainy day" money. In other words, keep a secure fund in a bank or building society you can access quickly for any unexpected outgoings or emergencies.
Make sure you can survive losses
As investments involve risks, to be truly comfortable investing you should be able to survive any losses. You're after a profit, obviously, but your finances shouldn't be crippled if you make a loss. This is closely linked to your timeframe for investing. How long can you afford to have your money committed to an investment? The reason this is important is that the stock market fluctuates; if you want a return on your money in a short timeframe it will affect your overall risk level.
Do some research
Consider how your investments are split between the main types of assets (equities, bonds, cash, property, money markets, etc) and between different markets around the world (the UK, North America, and so on). It can make a difference to the performance of your portfolio.
It's a good idea to read financial publications, newspapers and websites, to gain a feeling for investment choices, strengths and weaknesses of different sectors, the performance of the markets, what different experts advise (and how experts differ from one another).
See the Consumer information section of the Useful links area for some websites you may find helpful.
Get financial advice
If you’re in any doubt at all, you should seek professional financial advice before investing. This isn't free, but the cost of getting advice may save you a lot of money in the long run. See Getting financial advice.
Common mistakes
