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Five tips for beginner investors

Savings accounts may be a safe place for your money, but the interest rates are pitiful in today’s market and stock market investments could offer a higher return.

1. Investing is not just for the super wealthy

When you think of an investor, you may think of people like Warren Buffet or Geroge Soros, who have billions of dollars to put to work, earning them both money and power. However, modern technology has brought the cost of investing down to a level where anyone with some spare cash can invest it in the markets. Those who have a lump sum of £500 on hand or can put £50 aside per month will find themselves accepted into most investment funds.

2. Investment values will go both up and down

Bank accounts are safe and backed by a guarantee by the UK government, but that safety means that your money will be doing very little work for you, with many accounts offering interest rates under 1% AER. When you invest in stocks or other financial instruments or options you are taking more of a risk with your money, and while you may see returns as high as 10% or over, you may also lose just as much – so make sure you are prepared to lose the money you invest. You shouldn’t put the money you need for groceries into an investment fund, but that holiday money may be something you are prepared to risk.

3. Shop around

There are a wealth of financial instruments and funds available that allow you to put your money to work, each with different risks, different levels of complexity, and different levels of financial regulation. Make sure you understand the differences between the deals offered on property or bond investment places to others like which deal in more specific financial bets. If you invest in a fund, take a look how it has performed for the last five, ten, or 20 years – remember you are playing a long game.

4. You can invest in a cause

Most funds try to reduce the risk of investment by spreading their bets over a variety of companies in a number of industries. However, if you strongly believe in a subject like global warming, you can find green funds that specialise in investing only in companies that further the green cause, such as wind or solar energy. Oil stocks are the traditional drivers of the world economy, but people have become increasingly aware that their money can have an effect on the global scale – and that is one way to target issues that go beyond our national boundaries.

5. Don’t put all your eggs in one basket

If you put all your money into a single company and they crash because of a new competitor or technology, you may walk away with nothing overnight. By investing in a variety of companies in a wide range of fields you are protecting yourself from these one-off disasters. You may still take a small hit, but much better to lose 5% of your investments than the whole lot!

Photograph by Jarmoluk

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