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Investing:
where do I start?

Welcome to our principles of investment guide which will help you understand the basics of investing and arm you with introductory knowledge to aid discussions with your financial adviser.

Successful investing is about simple principles and careful planning; not gambling.

Speak to a financial adviser who will be able to recommend investments that are suitable for your individual needs and that best fit your specific risk profile.

If you’re thinking about investing for the first time, it may seem a rather daunting step. You might not be sure what the difference is between a share, a bond and a fund, let alone which one could be right for you. And the way that some people talk about the financial markets can make them sound more like a casino than a place where you would want to put your life savings.

Yet for most of us, investing – as opposed to saving our cash in a bank – is a crucial part of our financial planning. It offers the chance of higher returns, giving us a better chance of building up wealth to fund our long- term goals.

There are certainly risks associated with investing, but those can be reduced if you invest in a certain way. Learning how to do this is the key to making the best of the opportunities available.

Preparing to invest

Begin by making sure that your finances are on a stable footing, starting with a review of your current financial position. This should include looking at your existing income along with any regular expenses or outgoings, and debts which you might have. It doesn’t usually make sense to invest if you have high-interest debts such as credit cards to pay off. That’s because the interest rate you’re paying may be higher than the returns you’re likely to earn from investing. In other words, you may be better off putting any spare cash towards paying off your debts.

There are certainly risks associated with investing, but those can be reduced if you invest in a certain way.

Which kinds of investments might be most suitable for you?

Investments are a long-term decision, so you should also make sure you keep a separate emergency savings pot to draw on if you need cash urgently. How much you need depends on your circumstances, but as a general rule you should have at least enough savings to cover three months’ worth of regular expenses.

Educate yourself before diving in

The next step is to learn about the likely risks and returns of various types of investments. Doing this before investing any money in the markets is important, because many new investors begin with unrealistic expectations. This means that they may take on too much risk in chasing after high returns and end up losing money.

So you should begin by reading about the difference between major types of investments such as shares, bonds and property, and the kind of returns that they have delivered in the past and might be expected to deliver in the future.

Once you’ve got to grips with this, you can start thinking about what kind of investor you are and which investments might be most suitable for you.

You should aim to hold a range of investments that perform differently in different circumstances, since this will increase your chances of earning good returns whatever happens to the economy. This is known as diversification and it’s one of the most important lessons to learn in investment.

If you’re not sure, ask a financial adviser

Once you understand the principles of investment, it’s time to think about the practicalities. For example, look into tax- efficient ways to invest, such as offshore life assurance policies.

All this may sound like a lot to take in. As with everything in life, successful investing requires work to master the basics. The chapters in this guide will help you to get started, but you should also speak to a financial adviser. They can explain how all these principles apply to you and help you create a diversified investment portfolio.

Investments are a long-term decision, so you should also make sure you keep a separate emergency savings pot to draw on if you need cash urgently.