Making your first investments can be daunting with a broad choice of investments and providers offering different levels of services and products but it is an essential step for those who want to secure their financial future.
Whether you are saving for your first home, planning to boost your pension or simply want to make your money work harder, there are many services that cater for new investors with little or no experience and other providers offer comprehensive guides and education so that with a little reading you can start getting to grips with investing.
A good place to start for educational guides is the UK’s largest investment platform, Hargreaves Lansdown. Hargreaves Lansdown offers a range services for all levels of investors including share and fund dealing and has lots of research tools to help you select investments.
Guides that can help you gain the know how to make your first investment. These includes guides on funds and different types of accounts such as Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs).
SIPPs and ISAs have generous tax benefits such as income tax and capital gains tax exemption attached to the investments. The government will also add money to certain types of ISAs and to SIPPs so it’s worth looking into these.
Selecting an investment
Of even more importance to the type of account you choose to invest through is the actual investments you select.
The pillar of most investment portfolios are shares in companies listed on stock exchanges. Some of the most heavily traded shares are Lloyds Bank, Vodafone, Tesco and BP.
As these are household names its relatively easy to understand their business models and keep up to date with the latest developments, there are thousands of different shares to pick from and the timing of entry, as well as the outlook of the company, can have a big impact on how your investment performs.
When selecting different shares there are various valuations metrics and ratios that can help you judge whether a stock is good or bad value, click here for 10 Financial Ratios used by the pros.
Using a professional
To avoid the potential pitfalls of investing in single stocks, you may want to select a mutual fund to invest in. A fund is a broad selection of shares chosen by a professional fund manager whose job it is to manage the investments of a large pool of investors.
By investing in a fund you achieve a high level of diversification, which simply means you are spreading your risk and not putting all your eggs in one basket.
While investing in a mutual fund secures professional input in your portfolio, it does not guarantee success as each fund will have a different area of the market it will invest in and managers have a range of strategies they employ and its impossible for them all to outperform.
If selecting your own investments sounds too much like hard work or something you don’t have the time for, do not panic as there are many services that offer fully managed services at very reasonable rates.
Digital investment services such as Moneyfarm and Nutmeg offer services that manage your investments for you based on the level of risk you are prepared to take.
For example a lower risk profile is likely to have a large proportion of their investment allocated to cash assets and bonds providing a fixed income as these are classed as ‘safer’ assets than shares.
For those looking for something a little more racy, higher risk portfolios containing a higher proportion of shares will provide the chance of much higher returns as well as any losses if stock markets fall.