Investing can be a great way to grow your money, but it’s important that you only invest in a way that suits your individual circumstances and that you don’t put all your eggs into one basket. If you aren’t sure how to get started, a financial adviser can help you, but you can also ask yourself a few questions to decide if investing is the right choice for you, whether you opt for forex or shares.
Do You Have Emergency Cash Savings?
Before you start investing, make sure you’ve set aside enough cash to cover unexpected emergencies, such as losing your job, mending the boiler, or repairing a roof leak.
If all your money is invested, even in free shares, you could struggle to access the cash you need and end up resorting to overdrafts or loans. You might also need to sell your investments when they’ve dropped in value and make a loss.
Aim to have at least three to six months of savings set aside in an easy-access savings account, and more if you plan to make any large purchases soon.
What Is Your Attitude to Investment Risk?
Every investment comes with some risk, and it’s important that you understand and are comfortable with that before committing your money. In most cases, the higher the risk, the greater the potential return, but there’s also more chance of losing some or even all of your money.
The stock market comes with risk because returns are not guaranteed and your investments could fall in value. You can reduce the risk by spreading your money out across different assets, such as shares, bonds, property, and cash.
How much risk you can take on will depend on your financial situation and what your goals are. A financial adviser can help you to decide the level of risk that is right for you.
How Long Do You Intend to Invest For?
You shouldn’t approach investing as a ‘get rich quick’ scheme. The ups and downs of the stock market mean investing for the long term. At a minimum, invest for five years. This should give you enough time to ride out market volatility.
Think about what you are investing for. If you want to buy property in five years, pay your child’s university fees in ten years, or start building up savings to find your retirement, investing could help you to grow your money and keep up with rising prices.
Do You Have Enough Money to Invest?
There’s a common misconception that you need to be rich in order to invest. This isn’t true. As long as you have built up your emergency savings, you could start investing with a small lump sum or by putting aside a little money every month.
Over the long term, even small amounts of money could grow into a sizeable portfolio thanks to the power of investment returns and compounding. Your goals, financial situation, and attitude to risk will determine how much you can afford to invest.
Image Credits: Michael Förtsch