Most first-time investors place their savings in cash ISAs to avoid risk and tax on any interest. This is a safe option, but it does not offer very high returns. Investing in stocks and shares or other alternative investments is riskier, but if done sensibly, can lead to greater returns.
Deciding which level of risk – and thus, which type of investment is right for you, requires careful consideration. You’ve worked hard for your money, and now it needs to work hard for you.
First time investor?
Simply put, investing can help your money grow. This is especially important at a time when traditional savings accounts have low interest rates and inflation erodes the little interest they offer. If you invest sensibly and patiently, you should be able to account for inflation and ensure your savings are fit for purpose when you require them.
The first step is to determine your long-term financial goals. Every investor will have an individual reason for investing, and this will guide the investment approach. You, for example, might want to invest for your pension, an overseas holiday or a new car. Once you have your goal in mind, work out your timescale and how much money you’ll need.
Before you take the next step and actually start investing, you need to decide how much risk you feel comfortable with. The higher the risk, the higher the potential return. However, greater risk also comes with the potential for greater loss.
Types of investing for beginners
A typical investment is made up of various assets such as shares, bonds and property. They each come with their own pros and cons, which you need to weigh up in line with your overall financial goals.
Shares – when you buy shares in a company, you are buying a stake in its business. Buying shares is a form of equity investment. When the share price increases, equities can provide capital growth as well as income in the form of dividends. However, neither of these outcomes are guaranteed; this approach requires some experience and detailed company knowledge to ensure good investment returns.
Bonds – a bond is issued by companies and governments as a way of raising money. Bonds provide a regular stream of income over a specified period of time. Bonds are generally considered to offer stable returns, and to be lower risk than equities and therefore expected to deliver lower returns than equities.
Alternative investments – these can include investments in residential and commercial property, smaller companies that do not offer shares (private equity), infrastructure projects like roads and water supply and commodities such as precious metals and agricultural goods.
Funds – investing in a fund can give you access to a wide range of assets. Your money goes into a pool that fund managers then use to buy and sell various options on your behalf. Risk is spread across different investments, making it a safer option than shares.
What if I’m a first-time investor with ethical concerns?
If you’re a first-time investor with ethical concerns, you may want to consider socially responsible investing.
Socially responsible investing considers its impact on the wider world. It integrates environmental, social and governance (ESG) factors into its decision-making processes to ensure that no investment supports potentially damaging industries.
Responsible investing focuses on issues such as climate change, water management, workplace management, employee diversity, human rights and labour policies and practice.
Socially responsible investing is not philanthropy. While concerned with protecting society and the environment from further harm, its simultaneous goal is to build wealth.
Supported by TAM Asset Management (TAM), Greenfinch offers a diversified investment portfolio. These environmental, social and sustainable investment funds are designed to make a positive difference to the world we live in – without compromising our clients’ wealth. Our focus is on providing ethical options that offer the best prospects for financial growth.
With as little as £100, you can open a General Investment Account (GIA) with Greenfinch. This will enable you to invest in one of our risk weighted portfolios. Your choice of portfolio depends on how much risk you feel comfortable taking, the returns you’re aiming for and the time period in which you’re saving. Our portfolios all perform differently, and the results speak for themselves.
Who can help me invest?
When it comes to investing for beginners, it makes sense to ask for expert assistance. That said, there are a few options you can choose from, with varying degrees of oversight.
A stockbroker connects buyers with sellers of stocks and then executes buy and sell orders on behalf of investors – both individuals and companies. This creates liquidity in the market. Stockbrokers charge a fee for their service which is typically a percentage of the transaction.
A financial adviser will provide an investor with advice based on their personal circumstances, financial goals and risk profile. They will then suggest relevant investments based on this information and make the investments on behalf of their client if they agree. A financial adviser will often go to a fund manager or discretionary investment manager, rather than investing your money directly themselves.
With discretionary management, an investment manager makes investments in portfolios on behalf of clients according to their objectives and means. This includes day-to-day buying and selling securities to portfolio monitoring, transaction settlement, performance measurement, and regulatory and client reporting.
When it comes to investing for beginners, the range of options and approaches can be overwhelming – but it doesn’t have to be. For more information on Greenfinch’s diversified account options, give us a call or read up on your Greenfinch account options here.