Before deciding to invest, you’ll need to look at your current finances.
Answer our 4 quick questions to find out whether you’ve got your money ducks in a row, or whether you need a bit more time.
a) None at all
b) Some, but they’re manageable each month
c) Sizeable debts that I’m struggling to pay off
Putting your mortgage to one side, it’s normally a good idea to pay off any debt before investing, especially if you’re paying a high interest rate. But, if your debt is manageable, you could still consider investing by starting with whatever you can afford each month.
If you answered c) it’s best to focus on paying off your debts for now.
a) None at all
b) A little bit
c) I’m well covered
It’s usually a good plan to have some money put aside in savings, which you know is definitely there should you need it and can be quickly accessed. We usually suggest at least three months of your normal outgoings as a sensible amount to aim for.
If you’ve already got some money put aside but are planning to save more, you could consider starting to invest some of your money as well. You don’t have to have a large lump sum to start investing. There are opportunities to invest regularly with lower amounts.
But if you’re the main breadwinner or have a mortgage to pay, you may want to think first about how you or your family would cope financially if you were no longer able to earn. If you don’t already have it, taking out protection insurance is an option you could consider for some of your money.
a) I’ve got a lump sum I could invest
b) I’ve got some spare money each month I could invest
c) I’ve got a mix of the two
Investing a lump sum can work well over a longer period (five years or more is usually recommended although you can choose to sell investments at any time). You can expect ups and downs along the way but holding investments for longer means more potential for their value to go up by the time you come to sell them.
Regularly investing a smaller amount is another way to get started and can be good for building your confidence. By investing gradually in smaller chunks, you spread your risk of being affected if investment values go down. In fact, you can even benefit from this as your monthly investment amount will buy more when prices are low.
Whichever option you choose, or if you choose a combination of both, you should be prepared for the risk that you might get back less than your original investment.
If you’re not prepared to take that risk, or can’t realistically afford to, given your personal financial situation, you may not be ready to invest.
a) Yes, I’ll definitely want access within the next five years
b) No, I want to invest for longer than five years
c) I'm not sure yet
It’s good to have a goal in mind for your investment, whether it’s to leave it invested for a specific period of time for a rainy day, or to save for an upcoming event like the trip of a lifetime or a child or grandchild getting married or going to university.
Your timeframe could be a deal breaker. The short-term ups and downs of investments mean it might not be a good idea to invest if you need your money within five years.
It’s not that you won’t be able to sell your investments in a shorter timeframe. Many types of investments can be sold quickly with very little effort on your part and you’ll usually get the proceeds within five days. It’s that you’re less likely to make a profit and be more at risk of making a loss if you do.