With interest on savings at an historic low, more and more young women are starting to think about investing as a way to grow their money – but there’s still a slight shroud of mystery to the world of investing, which can act as a barrier, or make people nervous about dipping their toe in the water.
So, if you’re keen to invest, but not sure where to start or what everything means, here’s a quick guide to your options, as well as a jargon-buster for some common investing terms:
Have an emergency fund first
If you’re looking to start investing, it’s a good idea to have a comfortable financial safety net in an easy-access savings account, first. The last thing you want is to have an emergency or loss of income, and realise that all of your disposable cash is tied up in investments, and could have lost value in the short term or take time to access. A good emergency fund will cover 3-6 months’ worth of living costs for most people – you might feel comfortable with less, or you might like to err on the side of caution with a little more.
It’s not a good idea to invest money that you might need in the next 12-24 months, as investing is more of a long-term commitment.
Consider fixed-term savings for better rates
Before you start investing, it’s a good idea to also check out fixed-term savings accounts, to see if you could get a decent return this way. For sums of money that you might need in a year or two, this can be a really good option.
You can start small with robo-investors
Beyond any short- and mid- term savings, getting started with investing can be really exciting. So-called ‘robo-investors’, like Wealthify, Moneybox, Nutmeg and Plum are app-based and offer different kinds of investment accounts, letting you choose ‘funds’ (see the jargon-buster below) to invest your money in. These are typically very user-friendly and easy to understand, though you will usually pay a small percentage as a fund management fee. Most will allow you to open an investment account with a small amount of money, so that you can get a feel for the platform without risking large amounts of cash. Most have ethical or green funds that you can invest in, if the climate is high on your agenda, and specialist sustainable investing app Clim8 Invest is set to launch this year, too.
Platforms like Freetrade don’t charge fees, but require a bit more expertise in terms of trading, so you could move on to something like this once you’re feeling more confident.
For significant sums of money, see a financial advisor
If you’re looking to invest an inheritance, bonus or other windfall, it’s a really good idea to speak to a qualified and registered IFA (Independent Financial Advisor), who will be able to give you more tailored guidance. This does come at a cost, but it’s likely to cost you less than poor investment choices!
Remember that with investing, your capital is at risk
Although the more risk-averse among us might overestimate the uncertainty involved in investing, and most funds to trend upwards in value, there is always a risk to the money you put into investments. This is why it’s always best to have an emergency fund first, and to seek professional advice if you’re unsure.
The two main types of bonds are corporate bonds and government bonds. Think of a bond as a loan that you pay to a company, or the government, to enable them to finance large expenditures. Investors in bonds can expect to receive their investment back, plus more, after a set number of years.
Bonds tend to be a lower-risk investment than stocks, but the returns are usually lower, too.
The other main type of investment for private investors is stocks, which are essentially shares in a company. Their value increases or decreases based on how well or badly the company is doing – for instance, if the company is hit by a scandal, the share price will usually decrease.
Funds are a popular way to invest, particularly if you use an investment app. Funds pool money from lots of different people and puts it into a variety of different investments. They are often themed; there are designated ‘green’ funds, where money is invested more ethically, ‘tech’ funds where money is invested in technology etc. Every fund will also have an investment objective, often based around risk and growth.
Your portfolio is basically your collection of assets, and can include everything from the cash in your current account to any shares in companies you might hold and, of course, the funds you have invested in.
Diversifying your investment portfolio helps you to minimise risks – think of the expression, ‘don’t put all your eggs in one basket’. You can diversify where your money is invested by investing across different industries and currencies, and by putting your money into both stocks and bonds.
For financial advice, join our GLAMOUR Money Matters Facebook group. Love our Money Matters column? Feel worried about your finances? Or just want some expert help on how to achieve your financial goals? Get in touch with us at firstname.lastname@example.org to submit your own money diary to gain access to our expert-led advice, tailored to your finances! These submissions can be anonymous