Is investing right for me?
To maximise the chances of your investment doing well, you need to be able to tie your money up for five years at the very least but preferably 10. If you are likely to need your money in the next five years it is best to stick with cash. Choose the highest rate you can and use an Isa to ensure interest is paid free of tax.
Investing shouldn't give you sleepless nights either. If you are extremely worried about losing money you may be advised to stick with cash. However before you rule out stocks and shares, it pays to consider that ploughing all your money into cash is not necessarily a risk-free strategy. Be aware of what advisers call ‘reckless caution' - if you don't invest any of your money there is a very real chance that your savings will be eroded by inflation.
In the last 10 years alone the costs of goods and services has risen by almost 37.6%, according to ONS. This means to achieve the buying power of £1,000 in 2004 you will now need £1,376 and, for £1,000 saved over that time period, you will have need to have achieved an average savings rate of 3.4% a year for it to have kept pace with rising costs. If not, you will have effectively lost money.
So even though investment may seem daunting at first, it may be that it's the only way your money will grow fast enough for you to achieve your financial goals.
That doesn't mean you have to take huge risks; rather, it's about getting a diversified spread of investments where risk is balanced and controlled to provide steady growth. And the chances are that once you start thinking about your goals, your attitude to risk and your timeframes, there is every chance that your fears are reduced.
With savings rates remaining at rock bottom and people more desperate than ever to generate a decent income, now could be the perfect time to look at the world of investing. Here’s our guide to all you need to know to check if you’re ready to invest in the stockmarket.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).