Tips for a Cautious Investor
With interest rates offering little to get savers excited, now may be a good time to look at other options.
If you are a first time investor, you may be feeling nervous about taking the plunge. That's fine; there are a range of low risk investments to help you take your first steps into investing.
Here are some tips to get you started.
You'll Still Need Some Cash (So Make It Work As Hard As It Can)
Having cash to hand acts as a buffer against life's ups and downs. How much cash you need to keep depends on your situation. Some people like to keep a couple of months’ salary.
That being so, it's a good idea to make your cash savings work as hard as they can.
From Autumn this year, ISAs (Individual Savings Accounts) will become more flexible. You will be allowed to withdraw and replace money as you wish.
The only condition is that the net contributions stay within the ISA limit for any given year. This means that all or part of your ISA allowance can essentially be used as a standard savings account. It will have the benefit of allowing you to receive interest on your savings without paying tax.
Look At Government-Backed Schemes
Every now and again, governments introduce schemes to encourage saving and/or investing.
At the moment, first-time buyers building a deposit for a house might like to look at the “Help To Buy ISA”. This scheme is due to start in autumn this year. In short, for every £200 saved, the government will add £50, up to a maximum of £3000.
The government also recently ran a “Pensioner Bonds” scheme for over 65s. This is currently closed, but given its huge popularity, it is entirely possible that it will open again.
It's always worth keeping an eye open for government-backed schemes as they may offer special benefits.
Make Your Investments Match Your Needs
There is a huge range of investment products available.
Instead of thinking in terms of “good” and “bad”, think in terms of “appropriate” or “inappropriate”. In order to decide whether or not an investment is appropriate, you will need to start by taking stock of your current situation.
In particular, you will need to be realistic as to whether you should start investing right now at all. If you have high-interest debts, you may be better to spend any spare cash you have, on paying them down first.
Once you are ready to start investing, you will need to think about your short-, medium- and long-term goals. You will also need to be realistic about your attitude to risk.
You may have heard the expression “the value of an investment can go down as well as up”. This is true. It is also true that some investments carry more risk than others. Some people are happy to accept higher risk for the possibility of higher reward. Other people prefer to take a safer line in their investment strategy.
Of course it is perfectly possible to divide your investment funds between investments with different levels of risk.
Diversification And Dividends – The Two Pillars Of Investment
You've probably heard the saying “don't put all your eggs in one basket”. That often holds true for investments. Putting all your money into high-risk investments creates the risk of losing it all.
By contrast, putting it all into lower-risk investments means you can miss out on some great returns.
By having a mixture of investments of different degrees of risk, you can have the best of both worlds.
Also remember that investments can be for growth or income or a mixture of both. Many listed companies pay dividends to shareholders. These can be reinvested for more growth or used as income.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.