Novice Investors: Some Tips Before You Start
For those who have no reason to celebrate the returns on their saving accounts, investing in the stock market might be a very good idea. To succeed as a beginner in this line of investment you might want to note a number of things.
You don’t need a hefty bank balance to invest
You do not need to have Bill Gates’ bank balance to try your hand on the Stock, property or bonds market. Lots of investment funds accept deposits of even £50 per month or £500 to £1000 lump sumps. Nonetheless, you need to be patient even when you see your savings rising or falling in value. Since investment is not a short term affair, your money will have to be invested for about five years or a decade and above. This is why you might want to ensure the investment is one of your long-term investment goals such as investment for education of your children or retirement savings rather than saving for a new ride or house deposit.
One of the most upsetting activites is putting your savings on unpredictable markets. However, experience and years of investment have indicated that equities invested on the long-term outshine cash savings. In fact, if you decided to save your money in building societies and saving accounts, chances are you are losing money; for instance, by 2014 July inflation stood at 1.6 percent while cash paid on average by an ISA stood at 1.59 percent.
Investing has tax benefits
As a saver you are entitled to a tax free annual allowance of over £11,800 for money you have invested through shares and stocks with the allowance expected to go up by £15,000. You will not be paying capital gains tax at any given time on paid interest on investment done via Isa or income earned. In terms of dividends, you will be paying a 10 percent flat rate, which is an advantage to highly rated taxpayers who could have parted with 32.5 percent.
Where your investment will go
It is important to know exactly where you intend to invest. Cash has always been seen as less volatile an asset unless a building society or bank goes bust. The buying power of cash can however be eroded significantly by inflation and money can be lost. Investment in fixed interest or loans given to companies in corporate bonds or government also known as gilts offer a reliable but modest return and it is also a low risk investment, especially for the UK government that has never defaulted on its debt.
Shares are also another investment and offer stakes in companies and if the companies do well, their value will continue rising or falling if the value goes down. It is also possible to invest in commodities such as oil or steel, commercial or residential property.
Avoid having all your eggs in a single basket by diversifying your investment lump sums into various global markets, asset classes and companies. That way, as one company slumps, another will be rising, canceling the loss.
Rather than buy shares right away as a beginner, which can be very risky, difficult and expensive, invest via collective funds that provide affordable methods of purchasing diverse assets and you will not need to make investment decisions on your own when your investment knowledge is very limited.