Many of us have a knowledge gap when it comes to money matters. We hear terms such as stocks, shares, equity, investments, saving funds etc., which if unfamiliar, give the financial world a complex illusion. Unless it’s a subject you’ve studied, been shown or delved far into the subject yourself, you can end up feeling like a little fish in an ocean. As such we’re seemingly storing our savings in little to no yield accounts or not saving at all.
During some research we conducted recently, we found that most women don’t invest regularly. When we asked why, the most common answer – given by almost half of all the women we surveyed – was that they didn’t have enough knowledge. It’s hardly surprising: it’s not as if we all went to our investment lessons at school, or find ourselves regularly bringing it up over coffee with our friends. Fortunately, the subject isn’t as complex or as difficult as you might think. To help us better understanding investing our money, we talk to the experts at Hargreaves Lansdown for some advice on how we can get started.
Should I be investing?
Before you consider investing, you should have paid down any expensive short-term debts, because this is the first part of achieving any financial goals.
Next, you need to have a short-term emergency savings safety net in place, in an easy access account. As a rough rule of thumb, you should have between three and six months’ worth of expenses in the account, so you are covered if something unexpected happens.
Once those are in place, think about your aims – and your timescale. If you are setting aside money you will need in the next five years, you should have it in a cash savings account or ISA. Consider putting it in a fixed term savings account – which won’t let you get at your money for a year, two years or longer, but in return, will offer you a better interest rate.
If you are putting money aside for 5-10 years or more, then investment is well worth considering.
Why do people invest?
Quite simply, because while there are no guarantees you won’t lose money, over the long term, your investment has far more of an opportunity to grow than it would in cash. It means it has a much better chance to keep up with rising prices – while money saved in any regular savings account at the moment will be losing money after inflation.
What can I invest in?
There are some common kinds of investments, so it’s worth going over shares and funds.
What’s a share?
Think of a company as a cake in a cake shop. The shop owner will cut that cake into 10 slices and 10 people can buy one slice each. Each person now has one share in the cake. That’s basically how it works with companies, except that they are cut into thousands of slices.
Shares are also known as equities or stocks. If you hear these words, don’t worry, they are just alternative names for shares.
What’s the point of owning a share?
You generally own a share for two reasons. First, you may expect the company to produce profits, and pay a portion of them to everyone who holds a share. This is known as a dividend. Second, you may hope that your share will become more valuable over time. There are, however, no guarantees, because share prices can fall as well as rise.
How can I buy shares?
Some people buy shares direct, but if you’re investing for the first time, you might not feel ready to pick your own. When you are starting out, it’s much better to buy through what’s known as a fund.
These take your cash, mix it up with money from thousands of other people, and then an expert picks the best way to invest all this money. It saves you from making lots of decisions. It also means you’re investing in lots of companies so if something goes awry at one company, the others will offset it; and means an expert is on the case.
What fund should I buy?
First time investors often begin with a tracker fund that invests in shares. In much the same way as a sniffer dog will track a criminal by following in their footsteps, the fund is designed to try to follow an index as closely as possible.
An index is where similar companies are grouped together. You might hear people talk about the FTSE 100 index – that’s roughly the biggest 100 companies listed on the UK stock exchange. They might also talk about the FTSE All Share index, which is a wider list of around 700 companies, including smaller and medium sized ones. One great place to start is with a fund that tracks the FTSE All Share index.
How should I buy it?
One way many people get started is through setting up a direct debit to invest anything from £25 a month into a fund.
You can do this through any number of investment platforms, which make it simple to invest online or through an app.
It’s worth doing this through an ISA, rather than a straightforward fund and share account, because that way you know you won’t pay tax on your investments.
What if I’m still not sure?
Tackling investment is much easier if you are talking to someone else about it. You can speak to friends and family; you can get in touch with the helpdesk of an investment firm, who can iron out any issues (although they can’t give advice); or you can contact a financial adviser and get them to put together a financial strategy for you.
This communication has been specifically designed and written for use by the media. This is not a communication for investors: it is not personal advice or a recommendation to either invest or to refrain from investing.
Looking for other ways you can organise your finances, take a look at our below Money Matters features!