Lets us see the 10 steps to choosing the best money investment..
1. Investing money – how much do you have to invest?
Are you looking to invest a lump sum, or to set aside a regular
monthly amount? Maybe a short term investment or longer? And how much money do you have available?
Certain assets require a lump sum investment, such as corporate bonds or when you’re putting down a deposit to purchase a property, and others offer the flexibility of either lump sum or regular contributions, such as a cash ISA or stocks and shares ISA.
Some investments
also have a minimum financial commitment, so knowing what you can
afford and whether you plan to make a one-off or an ongoing saving is a
good starting point.
2. How long do you want to invest money for?
Or, put another way – when will you need access to your money?
Certain investment products run for a fixed period of time, so if you
have a specific date in mind as to when you need access to your capital, then some product types won’t be right for you. In addition, certain investments, such as shares, are much longer lasting and shouldn’t be considered as short term investments.
That’s because although shares have historically increased in value
over the long term, they can fluctuate in value in the short term. It’s
recommended that you invest money at least five years to be in a good
position to ride out these fluctuations.
3. What are you planning to use the money for?
We all have different reasons for saving, and the purpose of your investment can affect how much risk
you’re prepared to take with your money. If your investment is to pay
for your children’s education, then you may be investing over a long
period of time, and looking for a higher return, as a result you may be
inclined to choose a higher-risk investment option.
Conversely, if you’re investing money to pay for an overseas trip, or
a new car, you may be investing for a short period of time and want
certainty about the outcome of your investment, and you may feel more
comfortable with lower risk short term investments.
4. Do you need an income from your investment?
If you’re looking for a regular income from your investment then this
will influence your choice of product. A pension is probably the
best-known investment vehicle for providing an income in retirement.
There are other investment products available that can also provide a regular income such as annuities,
or corporate bond funds, alternatively you could choose to invest in a
buy-to-let property to provide you with a rental income.
Consumers may wish to seek professional advice first before taking out such products as they often require a huge commitment.
5. What age are you?
Attitude to risk can change with age. Longer term, higher risk
investment options may be more attractive to someone in their thirties
than to someone who is getting close to retirement.
People tend to invest money in lower-risk products as their retirement approaches.
6. What are your personal circumstances?
If you’re a parent with financially dependent children, then you’re
probably going to be more cautious with your savings than someone who’s
single and doesn’t have any dependants, and therefore more likely to
choose a low to medium risk and possibly short term investment. For
someone who’s self-employed the priority may be finding a product that
allows flexible contributions to suit a more erratic income pattern.
It’s important that you to take a close look at your circumstances
and how they affect what investment you opt for before you make a
commitment.
7. Do you have other investments?
If you already have a number of investments and feel that your future
financial requirements are well taken care of, then you may be willing
to take a higher risk with your next investment. However, if this is
your first and only investment then you may be more conservative in your
choice.
8. What are your values?
It’s important that you feel comfortable with where your money is
going, so if you have strong beliefs then it’s worth seeking out an
investment that fits with these. There are a number of green and ethical investments available as well as investments that are designed for specific cultural groups.
9. What’s your risk profile?
How do you feel about investment risk?
Not everyone is happy riding out the ups and downs of the stock market,
and if the thought of a particular investment makes you lie awake at
night, then it’s probably too risky for you.
10. How much flexibility do you need?
When you invest money, it gets tied up and is no longer easily
accessible. But, if you have a sudden need for cash how quickly and
easily can you liquidate your asset? And what’s the penalty for doing
this?
If you think this may be an important factor for you then it’s worth
knowing up front what the implication of getting out of an investment
early is – if indeed it’s possible.
Once you’ve answered these questions you’ll have a better idea of the
type of investments that would suit you. Financial advisers tend to
recommend having a portfolio of
investments, that way if one investment performs badly, you have others
to fall back on. It also means you can plan so you have short term
investments as well as long-term ones.
You may need to consult an appropriate professional – financial
adviser, accountant or tax specialist – about the tax implications of
any particular investment in relation to your own circumstances.
It’s also a good idea to review your portfolio on an annual basis
after you’ve invested money. Circumstances change, so it makes sense to
check that it still represents the best investment for you.