Use these tips and key steps to help find an investment that’s right for you.
1. Review your needs and goals
It’s well worth taking the time to think about what you really want from your investments. Knowing yourself, your needs and goals and Your appetite for risk is a good start, so start by filling in a Money fact find.
2. Consider how long you can invest
Think about how soon you need to get your money back. Time frames vary for different goals and will affect the type of risks you can take on. For example:
- If you’re saving for a house deposit and hoping to buy in a couple of years, investments such as shares or funds will not be suitable because their value goes up or down. Stick to cash savings accounts like Cash ISAs.
- If you’re saving for your pension in 25 years’ time, you can ignore short-term falls in the value of your investments and focus on the long term. Over the long term, investments other than cash savings accounts tend to give you a better chance of beating inflation and reaching your pension goal.
3. Make an investment plan
Once you’re clear on your needs and goals – and have assessed how much risk you can take – draw up an investment plan. This will help you identify the types of product that could be suitable for you. A good rule of thumb is to start with low risk investments such as Cash ISAs. Then, add medium-risk investments like unit trusts if you’re happy to accept higher volatility. Only consider higher risk investments once you’ve built up low and medium-risk investments. Even then, only do so if you are willing to accept the risk of losing the money you put into them.
It’s a basic rule of investing that to improve your chance of a better return you have to accept more risk. But you can manage and improve the balance between risk and return by spreading your money across different investment types and sectors whose prices don’t necessarily move in the same direction – this is called diversifying. It can help you smooth out the returns while still achieving growth, and reduce the overall risk in your portfolio.