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10 Top Tips for New Investors

New to investing? Our handy checklist of 10 top tips will help you get started

Holly Black 2 September, 2019 | 8:50AM

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1. Ask Yourself Some Key Questions

Why are you investing and for how long are just two of the questions you need to be able to answer before you put your money in the stock market. Are you hoping for a house deposit, saving for retirement or simply aiming to grow your wealth? Your investment goals will help determine which investments you pick and how long you hold them.

2. Work out Your Risk Appetite

If the thought of losing any money leaves you panicked, you might to want reconsider investing. Savings accounts may not offer much growth but at least your money is protected. Investing, meanwhile, comes with the very real risk that you could lose money. Of course, the idea is that you choose the investments that will help your money grow over the long-term but that doesn’t mean there won’t be ups and downs along the way.

Risk appetite questionnaires can be found online or through a financial adviser and help you work out how much risk you are willing to take, which will determine where you invest your money. Risk averse investors may opt for fixed income assets and steady dividend-paying funds, while those willing to take on more risk might choose racier emerging market equities and smaller companies funds, which can be more volatile but offer the potential for greater returns.

3. Do Your Homework

There are thousands of funds to choose from and you need to do your research before deciding which ones will make it into your portfolio. Read the fund factsheet to find out what it aims to achieve and how it plans to do this. Here you will also find a list of the fund's biggest investments as well as charts to show the countries and sectors in which it invests. Look at past performance (though this is no guarantee of future returns) and how the fund has fared compared with other similar offerings. Morningstar analyst notes can provide helpful insights in to the experts’ views on rated funds.

4. Keep an Eye on Costs

The fee you pay to invest in a fund eats into the returns you will achieve, which will limit the amount your money can grow. Compare the fees your fund is charging with other similar offerings and consider whether the performance the manager is delivering offsets that cost. Often there are a number of different “share classes” for each fund, which each have different fees – make sure you choose the “clean” or “unbundled” share class, which is usually the cheapest option.

5. Drip-feed Your Money

Fund supermarkets let you set up a regular investment plan whereby you invest a set amount each month automatically into funds of your choice – the money comes out of your bank each month the same as any other direct debit. This strategy means that investing will soon become a habit and smaller amounts will add up over time. 

Drip-feeding in this way rather than lump-sum investing can be a less risky way to put your money into the stock market because it means you benefit from a phenomenon known as pound-cost averaging, whereby over time your money buys fewer units in a fund when they are expensive and more when they are cheap, giving you a better deal over the long-term. In contrast, investing a lump-sum all at once comes with the risk that the market could fall the next day and you immediately lose money.

6. Use ETFs

In stock markets that are hard to beat, such as the S&P 500, choosing a cheap ETF can often be a good idea. These let you invest for as little as 0.05% compared with the average active fund fee of 0.75%. ETFs can provide a cheap core to your portfolio, allowing you add in small exposures to funds with more specific remits, which may be riskier.

7. Consider ESG

Many investors have historically been reluctant to use ESG, sustainable or ethical funds because they worried it would limit their financial returns. But sustainable funds have proved time and again that this doesn’t have to be the case. Investing with ESG considerations in mind lets you put your money to work in a way that matches up with your views on the world. The remits of such funds are incredibly varied too, so you could choose one that focuses on, say, renewable energy or gender diversity, or a fund that invests in global equities but picks those with the most sustainable business models.

8. Don’t be Tempted

The phrase “If it sounds too good to be true, it is” is never truer than when it comes to investments. Unregulated firms frequently entice savers in with attractive interest rates and exciting investment projects – but every year thousands of investors lose money in this way, as we have seen multiple times already this year.

If an investment offers a rate of return that sounds too good to be true, be very wary. You can check the Financial Conduct Authority register to find out if the company is regulated to sell investment products and scour the internet to find out more about the business; you should never be pressured into making a quick decision when it comes to your money.

9. Ask Around

Just as you would go to an expert personal trainer for help with your fitness goals and or to a doctor for health advice, you should consider getting help when it comes to your finances. Financial advisers can help you plan for the future and work out how to meet your financial goals. Read widely to get information and ideas about investing and don’t be afraid to talk to friends and family about your finances either!

10. Use Your Tax Allowances

Make use of your tax allowances each year to avoid paying tax on gains made on your investments. Adults can put up to £20,000 into an Isa every year, where the gains will be sheltered from the taxman, and the annual pension allowance is currently £40,000. On top of that, individuals have a £1,000 annual savings allowance, so if you have investments in a general investment account you can earn £1,000 a year in interest before any tax is due.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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