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Route to riches? Getting started in investment

Written by: Cherry Reynard
Savings accounts pay next-to-nothing, inflation is rising, and you need your money to grow faster. The returns available from stock market investment are tempting, but then it bounces around all the time and you are worried about losing your money.

How can you make your first tentative steps into stock market investment, without lying awake and worrying that it’s going to leave you destitute? Here are 10 tips to get you started:

1) Start small

You need to get used to the idea that the capital value of your savings might move about a bit, and build from there. Commit to a small amount each month and see how it goes.

2) Start safe

It is easy to be seduced by the idea of making ten times your money on that undiscovered tech stock. However, if you’re starting out, investing in a range of well-established companies is likely to make more sense. Collective funds such as unit trusts or OEICs do this for you.

3) Understand the risks

You can lose money in stock market investment. There’s no way around that. However, if you invest for long enough to ride out the market cycles, you usually make more than you would have done in a savings account and have better protection against inflation. A three-five-year time horizon is usually about right.

4) Save monthly

If you put a big lump sum into the market in one go, you may get lucky and hit the market at a low point, but more often people tend to invest when the market is at its highest. If you invest regularly, you will invest at a range of different price points. This reduces the risk of investing just before a stock market sell-off.

5) Pick a platform

Consumer investment platforms such as Hargreaves Lansdown, Alliance Trust Savings, Fidelity or the Share Centre make it easy to invest. They work just like online banking and you can see the value of your investments at any time. You can also use the Comparetheplatform site to check out the price of a host of DIY investing sites.

6)…and take their advice

Most platforms will have advice for first-time investors. Hargreaves Lansdown has its Wealth 150, Fidelity has a list of recommended funds from in-house expert Tom Stevenson, other platforms have model portfolios. This makes it easier to pick the right option.

7) Consider an investment trust

If you don’t fancy investing on a platform, some of the investment trust groups offer cheap and easy savings schemes. These have relatively low minimum investment levels – around £25 in some cases. Baillie Gifford, Aberdeen and Witan all have share plans.

8) Take account of costs

If you’re expecting a 3-4% return on your savings, you don’t want to give up 2% of it on fees. Fees are not the be-all and end-all, but high fees will dent your long-term returns.

9) Do you need an income?

It may help to have a little extra coming in every month to pay bills. If you need an income from your investments, to pay education costs, for example, you need to pick the right type of funds – equity income or corporate bond funds may be appropriate.

10) Consider taxation

Always buy investments within an ISA wrapper where possible. All income and capital gains generated on investments held within an ISA are tax-free. There is usually no cost associated with holding investments in an ISA wrapper. In other words, it’s a no brainer.

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