Let’s talk about… investing!
In the second part of this series (the first part, let’s talk about money, can be found here), we take a closer look at investing – the myths, the truths and what you really need to know.
Investing is a word many women shy away from. There are many misconceptions associated with the word ‘investing’- with women in particular often feeling nervous that things will go wrong, that they don’t have enough money to invest, or that it simply isn’t the realm for them.
However, what people don’t always realise is that if you have a stocks and shares ISA, or a pension (private or company), you are already invested in the stock market! So now you know that, here is a bit more about the investment process…
Although at a basic level, investing means buying shares in publically listed companies, the reality is, most of the time, you wouldn’t usually go about it as directly as this. There are several different vehicles available via which you can make investments…
One that you will almost certainly have heard of is ISA – but rather than keeping money in cash, earning a fixed interest rate, your money is invested in the stock market. If you set up a stocks and shares ISA yourself, you will then have to decide how to invest it. Many investment platforms will have a list of recommended investment funds (described below), or you can choose to invest in individual companies. The main benefit of investing in the ‘wrapper’ of an ISA is that any gains made are not taxable. Each individual has an annual allowance in which they can invest in ISAs (£20,000 for the tax year 2019/20).
Another common way people invest in the markets is via investment funds. There are several different types of investment funds available, but in basic terms, an investment fund is a type of collective investment scheme under which all fund participants invest money together. Investment funds termed Unit trusts and open-ended investment companies (OEICs) are one of the most popular as these are run by investment managers, whose remit it is to achieve a set of objectives. Funds can be invested in using the funds from a stocks and shares ISA, a Lifetime ISA, or by directly investing money. There are thousands of different funds to choose from – each having its own area of focus. For example, many will be comprised of companies based on location, and some on sector. You may also want to invest according to your own ethics or beliefs – and there are several funds out there that cater to these needs.
As previously mentioned, a pension is also a vehicle via which investments are made. Depending on the way the pension is set up and managed, individual investors will have different levels of control over the funds and companies in which their money is invested. One of the main drawbacks of investing in a pension is that you won’t be able to access any funds until you’re at least 55.
So how much should you be looking to invest on a monthly or annual basis? This question needs to be considered against the backdrop of two key considerations – what your investment goals are and how long you have to achieve them. The closer you get to retirement, the less time you have to be able to add to your retirement fund.
A financial adviser would always encourage you to have an ‘emergency fund’ – a sum of money equal to at least 6 months of living expenses that could be immediately accessed should you need it. Once this is in place, it comes down to how much you can afford – and are comfortable with – putting away. Investing shouldn’t really be considered a short-term strategy – any money invested should really be done so with the intention of leaving it there for a period of at least 5 years. Pensions are a great way to save for the long-term and carry many benefits, however, as you won’t be able to access these funds until the age of 55, you need to bear this in mind when choosing where to place your money.
Of course the whole point of investing is to achieve a financial return. However, closely linked to this is another fundamental factor to investing – risk. The level of risk you’re willing to take may have a bearing on the financial gains your investments will achieve over the long term. However, this is often a complicated choice. We’ll look at this in the next instalment of the series!