Are you ready to invest?

So, you want to invest? Great news! Here’s everything you need to know before you get started.

You’ve probably heard that investing your money gives you a better chance of growing it in the long-term than if you leave it in the bank. Which is right.  

Over time, the profits you make on your investments tend to beat inflation and outperform other options like saving in cash. 

What’s inflation - and what can I do?

Inflation, which is basically things getting more expensive over time, can be the enemy when it comes to your cash. Remember how much cheaper a loaf of bread used to be? And holidays and fuel for your car? 

Well, if your money doesn’t keep up with price rises, it won’t go as far. It means you are actually losing money year-on-year. It sounds wild, but it’s true.

Investing provides us with an opportunity to beat inflation - and build your wealth - over the long term. 

This is because the returns you get on your investments, such as stocks or bonds, can outpace the rate of inflation over time.

Anything else I should know?

Investing also perfectly highlights the power of compounding. This is where your returns generate returns of their own. 

Think of a snowball rolling down a hill, getting bigger and bigger. That’s what happens to your money when you invest. 

Your investments may go up and down - but that’s normal and it’s why investing should be seen as a long-term plan. 

You should be able to tie up your money for at least three to five years, but the longer the better. Having time on your side means you can ride out the dips. If you look back over the decades, you’ll tend to see a general upward trend.

We know you can’t wait to get started, but there are a few things to do first to make sure you’re ready.

Clear your debts

The first thing to consider is whether you have any high-interest debts, like credit cards and personal loans. If you do, it’s a good idea to pay them off before you start investing.

There’s no guarantee that any returns you make on investments will exceed the interest you’re paying on your debts, so you may still find you’re losing money overall if you don’t clear them first.

Ensure you’ve got a buffer

Next, make sure you have emergency savings to cover at least three months’ of living expenses.

This should be in cash, in an easily-accessible account to cover unforeseen expenses, such as car repairs or if you lose your job. 

Building an emergency fund before investing means that if you’re hit with unexpected costs, you won’t have to sell your investments prematurely. Or worse, take on expensive debt, in order to cover them.  

Cover yourself 

Thirdly, have you got insurance that suits your circumstances? 

This could include life insurance, which pays out to your family when you die, or cover if you get sick or injured and can’t work. 

As with the emergency fund, having this protection in place means you or your family don’t have to worry about urgently selling investments if you’re hit with financial difficulties. Instead, you can give your investments the time they need to grow.

That’s all, folks

If you answered yes to all of the above, congratulations, you are ready to invest! 

But if you still feel like something’s holding you back from getting stuck in, it’s worth trying to understand what’s causing these reservations. 

For example, if you’re worried that you don’t have enough money to invest, be assured you don’t need to be wealthy to start. One of the best ways to begin your investment journey is with small, regular sums. 

And if you’re concerned about the risk of investing and that you might lose all your money, it may be worth speaking with a financial expert to help you overcome your fears. 

Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.