Our writer Charlotte Bendkowski speaks with online financial advisor Jack Thornton, about his savviest tips, and pointers for first time investors.
The financial investment world can be tricky to navigate, and often leaves us confused and doubtful of our life choices. We hold your hand through the world of ISA’s and small investments...
What are your tips for first time investors?
Start early! Establish a savings habit early on and it will become part of your pay day routine. Do not worry too much about the amount but try to regularly save each month, after a little while you will forget about it and it can grow each month in the background.
Don’t invest more than you can afford; if you invest too much you are likely to need to access that money and if for example the markets have fallen this may mean that you withdraw whilst your funds are down. You also want to have a timeframe of at least 5 years to give your investment the best chance of achieving growth and riding out short term fluctuations.
‘Watch the tide, not the waves!’ – this is hugely important, the nature of investing is that markets move in price daily meaning that short term downfalls can and do happen. In the bigger picture though values will go up over the medium to long term so it’s important that you do not make rash decisions based on short term market movements i.e. the ‘waves’.
Do you need to invest a big sum?
Absolutely not. Some providers/platforms may have minimum investment amounts, but many will allow regular monthly investments from a small amount for example £50 or £100. The main thing is to get started and establish a good level of discipline with your savings.
Where should I start investing if I want to access the money sooner than a pension would allow, for a future large purchase for example?
I think everyone should be aware of ISAs and what your ISA allowance is. In the current 2020/21 tax year it is £20,000. ISAs are free of Income Tax and Capital Gains Tax (the tax on certain levels of profit) and so they are a great saving tool, especially for taxpayers. Stocks and Shares (investment) ISAs will allow you to begin to invest whilst retaining accessibility, there are usually no fixed time restraints not age at which you can withdraw funds. So especially for first time investors I would suggest these types of investments. If you have a particular goal amount in mind it is really important that you talk to someone, such as an adviser, who can sit with you and work out how much you should be saving to reach that goal in your given timeframe.
Is there a risk of losing money?
Any investment inherently carries a risk that the value of your ‘pot’ may go down as well as up. When you invest you are of course hoping that the funds or assets you are investing in do well and that the price of them ends up higher than what you originally bought them for. This does not always happen and so it is crucial that an investment is diversified and is left to grow over at least the medium term (5 years plus). This means spreading your money across various asset classes, geographical locations (i.e. across the world) and fund types. In doing so you cannot remove risk completely, but you can reduce it and ensure that a good balance is included so that should one fund go down another is going up at the same time.
When can I withdraw the profits?
This is completely dependent on the type of investment that you have chosen. If you have invested into a pension, then your funds cannot be accessed until age 55 (soon to rise to 57). If you have invested into a Stocks & Shares ISA then many providers do not place a restriction on how or when you can access your monies (you should always check this before investing as some do want you to invest for a set amount of time). That said, you should bear in mind that even though you can access your investment, you should go into it with medium-to-long term (5 years +) in mind for the reasons we discussed earlier.
Do I need a professional?
Great question! Whilst you can invest your money yourself, this does require a high level of knowledge and expertise of the funds you are selecting as well as the time to constantly monitor them to ensure they are doing well and make changes at the appropriate time (i.e. making market predictions). Being a fund manager is a full-time job so not many people can successfully and more importantly, consistently, achieve good results in their spare time. Speaking with a Financial Adviser is also a great point of call for information on how best to establish a good financial plan and to achieve the longer term goals that we all have (just make sure that you are fully aware of any potential costs as some types of advisers will charge for meetings).
Check out Jack's Instagram, where he offers financial advice on matters that affect us all @jackthornton_financialadvice