Investing – why should you consider it?
With interest rates still in the doldrums whilst we await a future decision to raise them, it’s never been a better time to look at investing…
Interest rates are just above zero…
So to help maintain your current lifestyle, and provide a comfortable retirement further down the line, it means that investing could be beneficial.
You might think that interest rates will rise at some point to solve this problem but I don’t expect to see a significant change for a while. Even then, if inflation comes back with a vengeance, the interest is immediately offset as the cost of living increases.
In a world of uncertainty, where do those who are unsure about saving or investing go? Where do you start?
Let’s start with a little knowledge…
The difference between saving and investing
Simply put, ‘saving’ means putting a proportion of your money, traditionally in a bank or building society.
‘Investing’ is putting that money to work, aiming for it to make a better return.
Still with us? Good.
Now whilst your money in a savings account sits there currently earning very little interest, don’t forget that with the rising costs of living, £100 today may not buy you as much in ten and definitely not in fifty years’ time. Investing that money of yours can seem daunting, but take hold of my hand – let’s start with some small steps.
Three steps to be precise…
Check yourself (before you wreck yourself)
First of all, can you afford to invest rather than save?
Take a good hard look at your financial situation, checking what’s coming in and going out.
If you have debt – pay this off first and once this has been cleared, make it your priority to start putting away some as a rainy day fund.
At least then you know if you need it, you can access it. As a rough rule of thumb, I suggest trying to save 20-30% of your monthly pay where possible.
We’re big on setting goals here at Reddington, in case you haven’t noticed, and we encourage everyone to set themselves financial goals.
Your goal can either be medium to long-term (i.e. in five years’ time you want enough for a property deposit or a dream wedding) or shorter (i.e. a well-earnt holiday next year).
Having financial goals makes it easier to get into the mindset of saving – if you know you want to go on holiday, get a new car or if you want to have enough for a first-time deposit, topping up as and when possible will benefit your end goal.
Write it down. Work backwards from the end goal to help you identify the steps needed.
Be as specific as possible – a statement such as “I want to save money” is vague.
Saying to yourself: “I’ll save 25% of my salary each month, and put half into a savings pot and the other in an ISA” is more realistic.
Grow your money
As well as storing all your cash in a traditional deposit account, an alternative low risk option is to look at a cash ISA (Individual Savings Account) – these fall into either instant access or fixed rate. With instant access, your money is available 24/7. For fixed rate, the interest rate is fixed and only applies provided you do not touch your money, during the time specified. If you do, however, there is usually a penalty.
Low risk generally means lower reward and returns. There are other options to consider, such as Bonds and Gilts, but we’ll come back to these in future articles.
Note that where investment products come in, the risk factor starts to go up because there is no guarantee you will not lose money– the money you put in could go up or down, and your capital is at risk.
The good news is investing doesn’t need to be such a scary prospect. If you are sensible, first understand all the risks and then you’ll be able to invest in a way is suitable for you and your aims to achieve a lifestyle or a retirement you want, without risking everything. It may seem from afar that investing is daunting but it doesn’t need to be!
So before making a decision, think about a balanced approach towards living the life you wish, without being reckless. And be sure to do your research!
Remember if you’re unsure about how to manage your finances, getting help from a financial adviser is an investment that could save you money
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. You may get back less than you invested.
An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
Cash ISAs are not available through St. James’ Place.