Investing is about making your money work harder for you. We believe it should be simple and rewarding.
We’ve developed a set of four fundamental principles to help make good investing easier for everyone. Whether you’re just getting started or are well on your way, these key investment ideas can help lay the groundwork by setting clear goals, developing a plan for the long term and sticking to it. While your personal situations and preferences may lead you down different paths to your goals, these tenets are here to keep us all on the right track.
We believe investing is for the long term, so it makes sense to start with a firm financial foundation. Before you begin, there are a few things to consider.
Earning interest on interest helps build long-term investment returns but when it comes to debt, this same compounding effect can work in reverse, increasing the amount you owe. Where possible, pay off any expensive unsecured debt (like credit card bills) to make sure your money can start working for, not against, you.
Having a financial safety net in place is always a good idea. Aim to build up at least six months’ salary in easy-to-access savings to help cover any unexpected emergency expenses, without dipping into your investments.
Use our guidance to access information, videos, tools and analysis on all aspects of investing or, where necessary, pay for advice from an authorised financial adviser if you feel you need it.
Be sure to take full advantage of employer contributions to a company pension, especially if they match your own.
Knowing what you want from your investments, and how you’re planning to get there, will help set the course for the rest of your investment choices.
Whether you’re just starting out or have a wealth of experience behind you, we know the best long-term investment decisions are based on your own personal financial goals. So, ask yourself what you’re investing for and how long you have before you’ll need to access your savings.
Make the most of your tax-efficient allowances before putting money into another investment account. Investing in an ISA means you won’t pay any further income or capital gains tax on the investment returns you earn, while a personal pension (SIPP) account will benefit from tax relief, meaning the government will top-up your contributions.
Remember, eligibility to invest in an ISA or SIPP and the value of any tax benefits depends on your personal circumstances. All tax rules may change in future. Withdrawals from a pension product will not be possible until you reach age 55.
It’s important to consider the pros and cons of an active or passive investment approach. While actively-managed investments benefit from the expertise of a fund manager, passive options like tracker funds can be cheaper. Combining both approaches within your portfolio could help you achieve your goals while keeping an eye on costs.
Making regular monthly contributions into a savings plan can grow into a sizeable nest-egg over time, even if you’re only investing a small amount. You can open a regular savings plan with us from as little as £50. Plus, you have the flexibility of choosing to invest either monthly, quarterly, half-yearly or just once a year.
Investing regularly helps avoid the temptation to time the market.
Start investing as soon as you can afford to. Remember investments benefit from the magic of compounding over time, so the sooner you begin, the better your returns could be.
Knowing what level of risk you’re most comfortable with will help you choose a blend of assets that is right for you. Your attitude to risk is likely to change over time so be consistent but also flexible in your approach.
The basic split of your assets will have a significant influence on your investment returns over the long term. Spreading your money across different assets (equities, bonds, commodities, property and cash) helps to balance out the ups and downs of the market. One of the best ways to diversify your portfolio is to invest in a fund, which may already invest across a broad range of individual companies and assets. Learn more about effective asset allocation.
Don’t buy single equities unless you already have a diversified portfolio and are confident you have the requisite knowledge and experience.
Remember, though, that holding more funds doesn’t necessarily mean your portfolio is more diversified. In some cases, fund holdings may overlap, which can increase your exposure to a particular company or investment strategy. Actively-managed funds aim to cherry-pick the best options within a given market and holding too many funds may mean you’re simply following the performance of the overall index, but still paying active management fees.
However tempting it may be to follow the latest fad or trend, be wary of making investment decisions on a whim, or simply following the herd. Many of our investment journeys are focused on funding the big moments in our lives and so they deserve careful thought and planning.
Remember to keep an eye on your total returns. As one of the most important metrics for measuring progress over time, it includes interest earned, capital gains, dividends and distributions realized.
Stock markets can be unpredictable, and your investments will perform differently over time. So, it’s important to keep the long term in mind and see past any short-term peaks and troughs.
Try not to monitor your portfolio too frequently or get distracted by the daily performance of individual investments – focusing on the short term can breed bad habits and prompt you to act rashly.
Instead, schedule a check-up every year to make sure your investments still match your attitude to risk and are on course to meet your financial goals.
The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.