Investments differ from regular savings accounts in that they don’t offer the security of guaranteed returns that your bank provides. Investing is inherently risky, which is why it requires a long-term perspective to iron out the peaks and troughs that inevitably occur. In this article, Acumen gives you our top investment tips to bear in mind when choosing your investments.
Investment tips to get you started
There are a dizzying number of investments that you can make. These range from tried and tested options – such as shares, bonds, funds and the property market – to more exotic alternatives like wine, vintage cars and artworks. For the purposes of this exercise though, and to keep things simple, we’re going to focus our money investment tips on the more mainstream avenues of investment.
In this age of austerity, banks have been offering pitiful interest rates to savers. Encouragingly though, the Bank of England (BoE) has increased the base inflation rate to 0.75% (after a decade kept at 0.5% or lower) and banks have responded in kind with gradually improving interest rates. Encouragingly, the Consumer Price Index rate fell below the BoE’s 2% target in January (1.8%) for the first time in two years, offering a boost for households’ spending power. However, these green shoots of optimism could just as quickly be eroded by the result of the protracted Brexit negotiations.
All of which makes investments an attractive option. As long as you’re willing to play the long in pursuit of bigger returns. It must be said that despite the fact that stocks and shares have historically outperformed money in savings accounts, that isn’t to say that they will continue to do so in the future. If you can accept these risks from the outset, and we each have very different risk thresholds, then a well-researched investment plan might be worth considering.
5 investment tips for beginners
Beginner investors should consider these money investment tips when weighing up the various options available to them.
Make the most of the tax-free allowance
You’re entitled to an annual tax-free allowance of up to £20,000 in the current tax year on money invested through a stocks and shares ISA. You won’t pay capital gains tax on any profits earned or interest paid and withdrawals are free of tax.
1 Choose between bonds or shares
There are several ways to invest money. Fixed interest bonds offer limited but reliable returns and are generally lower risk than shares. Shares, or equities, give a stake in a company or commodity (such as gold). These rise in value when the business or commodity perform well and fall when they don’t, which is why they present more of a risk.
2 Monitor the historic performance of funds
With a wide choice of investment funds available, it’s imperative to do your homework to find one that meets your goals and appeals to your appetite for risk. It’s important to monitor a fund’s historical performance, over five or seven years for example, rather than simply how it did last year.
3 Diversify your portfolio to spread the risk
Diversification involves dividing your lump sum across a varied portfolio of different companies, asset classes or global markets to spread the risk. As some markets fall, others will inevitably rise and help to cancel out any losses you might incur.
4 Practise pound-cost averaging
You can improve the likelihood of maximising your returns by regularly drip-feeding your money into a fund rather than investing a lump sum. Known as “pound-cost averaging”, this approach entails buying fewer shares when the market is rising and more when it’s falling in a bid to average out your cost and risk.
Speak to an IFA about more ways to invest money
Of course, despite the fact that there are numerous DIY investment platforms available to lay investors now, our number one investment tip is to seek the advice of an independent financial adviser (IFA) to ensure the maximum gains with the minimal risks. Acumen’s experienced IFAs can advise you on the best way to achieve your aims and help to ensure your investments realise the outcomes you want. Also we have a useful video which Daniel Frampton has produced which talks you through and introduction to investments in a lighthearted, easy to follow style.
Acumen offers independent investment advice, outsourcing the daily management of funds to one of our trusted network of investment advisers. This enables us to focus on what we do best, financial planning, and places your assets in the hands of investment experts who have the resources and industry knowledge to deliver the best possible results.
Find out more about how Acumen looks after your investments. To arrange a meeting with one of our IFAs today, please call 0151 520 4353, email firstname.lastname@example.org or visit www.acumenfinancial.co.uk.