Collaborative Post
Most of us do our best to save a little money. We like to have some cash put aside for emergencies and are conscious of the fact that we need to save for our retirement. So, we open a savings account and put as much money into it as we can. Perhaps, we shop around every now and again for a better rate of interest. But, that’s it. Very few of us try investing some of our money instead of simply saving it.
I have learned from Wealthify that it is now possible for ordinary people to start investing even if they only have a small sum of money to get started with. This got me curious, so I decided to find out more.
As you will see investing is not the right option or a possibility for absolutely everyone. But, it is something it is well worth looking into. If you cannot afford to invest as well as save right now, the chances are that you will be able to do so later in life. So, every few years, review your financial situation and decide whether investing is a good idea for you.
This quick guide is designed to help you to do so. But, it is only a starting point. As you will see, you will need to go online or contact a financial advisor and do a bit more research before taking the plunge.
Investing is not the same as saving
The first thing to understand is that investing is not the same as saving. They sound like they are, but they are different. So, you need to understand the differences.
You need to understand the risks of both options. With investments, there is a risk that you will lose some or all of your capital. For example, if you invest in shares, their value can go up and down. Some years, you will get paid a dividend, other times you may not. If the market is up and the businesses you are investing in are doing well you could potentially sell your shares and make a healthy profit. But, if an emergency means you have to sell when the price is low you can end up with less cash than you put in.
However, there are many types of investment vehicles. Some offer more flexibility and lower risk levels than others. So, don’t let that put you off of investigating the possibility of investing some of your funds.
Should people with debts invest?
If you have a windfall, perhaps an inheritance, you have a decision to make. Do you pay off some of your long-term debt e.g. your mortgage or do you invest that cash? It sounds like an obvious decision. But, there are many factors, so it is something you may want to seek advice about.
Tax implications
You also need to understand the tax implications of investing instead of or as well as saving. If you are not careful, some of your profit can be wiped out by having to pay tax.
As you can see it is not a straightforward decision. If you are at all unsure the sensible approach is to seek the advice of an Independent Financial Advisor (IFA). You can easily find one online.