Top tips for choosing investments

Use these tips and key stepsto help find an investment that’s right for you.

1. Review your needs and goals

2. Consider how long you can invest

3. Make an investment plan

4. Diversify!

5. Decide how hands-on to be

6. Check the charges

7. Investments to avoid

8. Review periodically – butdon’t ‘stock-watch’

Key investing steps

1. Review your needs and goals

It’s well worth taking thetime to think about what you really want from your investments. Knowingyourself, your needs and goals and your appetite for risk is a good start, sostart by filling in a money fact find.

2. Consider how long you can invest

Think about how soon you needto get your money back. Time frames vary for different goals and will affectthe type of risks you can take on. For example:

If you’re saving for a housedeposit and hoping to buy in a couple of years, investments such as shares orfunds will not be suitable because their value goes up or down. Stick to cashsavings accounts like Cash ISAs.

If you’re saving for yourpension in 25 years’ time, you can ignore short-term falls in the value of yourinvestments and focus on the long term. Over the long term, investments otherthan cash savings accounts tend to give you a better chance of beatinginflation and reaching your pension goal.

3. Make an investment plan

Once you’re clear on yourneeds and goals – and have assessed how much risk you can take – draw up aninvestment plan. This will help you identify the types of product that could besuitable for you.

A good rule of thumb is tostart with low risk investments such as Cash ISAs. Then, add medium-riskinvestments like unit trusts if you’re happy to accept higher volatility. Onlyconsider higher risk investments once you’ve built up low and medium-riskinvestments. Even then, only do so if you are willing to accept the risk oflosing the money you put into them.

4. Diversify!

It’s a basic rule of investingthat to improve your chance of a better return you have to accept more risk.But you can manage and improve the balance between risk and return by spreadingyour money across different investment types and sectors whose prices don’tnecessarily move in the same direction – this is called diversifying. It canhelp you smooth out the returns while still achieving growth, and reduce theoverall risk in your portfolio.

5. Decide how hands-on to be

Investing can take up as much or as little of your time as you’d like:

If you want to be hands-on andenjoy making investment decisions, you might want to consider buying individualshares – but make sure you understand the risks.

If you don’t have the time orinclination to be hands-on – or if you only have a small amount of money toinvest – then a popular choice is investment funds, such as unit trusts andOpen Ended Investment Companies (OEICs). With these, your money is pooled withthat of lots of other investors and used to buy a wide spread of investments.

If you’re unsure about thetypes of investment you need, or which investment funds to choose, getfinancial advice.

6. Check the charges

If you buy investments, likeindividual shares, direct, you will need to use a stockbroking service and paydealing charges. If you decide on investment funds, there are charges, forexample to pay the fund manager. And, if you get financial advice, you will paythe adviser for this.

Whether you’re looking atstockbrokers, investment funds or advisers, the charges vary from one firm toanother. Ask any firm to explain all their charges so you know what you willpay, before committing your money. While higher charges can sometimes meanbetter quality, always ask yourself if what you’re being charged is reasonableand if you can get similar quality and pay less elsewhere.

7. Investments to avoid

Avoid high-risk productsunless you fully understand their specific risks and are happy to take them on.Only consider higher risk products once you’ve built up money in low andmedium-risk investments.

And some investments areusually best avoided altogether.

8. Review periodically – but don’t ‘stock-watch’

Regular reviews – say, once ayear – will ensure that you keep track of how your investments are performingand adjust your savings as necessary to reach your goal. You will get regularstatements to help you do this. Find out more below.

However, don’t be tempted toact every time prices move in an unexpected direction. Markets rise and fallall the time and, if you are a long-term investor, you can just ride out thesefluctuations.

Key investing steps

·        Complete a money fact find

·        Making an investment plan

·        Do you need a financial adviser?

·        Popular investments at a glance

·        How to buy investments

·        Review your savings and investments

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