When is the right time to start investing?
The right time to start investing will always depend on an individual's particular circumstances, but research suggests that the longer you are invested in the stock market, the greater your chances of investing success. Investing early can benefit from 'compound growth' where your earnings are reinvested back into your original investment. This means over time they have the potential to grow faster than the original investment alone. Of course, the value of investments may fall as well as rise and you may not get back all of the funds you initially invested.
This does not mean, however, that it is ever too late to start investing.
Tax-efficient investing through a Trading ISA or SIPP means your investments can grow for years free of income tax or Capital Gains Tax*.
If you are a more confident and experienced investor CFD trading, Financial Spread Betting and Covered Warrants can provide short-term gains even when the market is falling, but be warned the risk to your initial investment is much greater and you may lose more than you first invested.
Understanding different types of risk
In addition to your personal appetite to risk, your investments and returns are also subject to different types of risk. For example, the values of shares listed on a financial market, such as the London Stock Exchange (LSE), tend to move in the same direction in response to factors that impact on the economy as a whole. This is known as ‘market risk’. There are many other types of risk that will impact on your investment. These include:
- Capital risks
- Income risks
- Interest rate risk
- Inflation risk
- Currency risk
- Systemic risk
Your approach to how you manage risk will vary. Placing all your investment funds into one company that has a track record of being highly volatile is a high risk strategy. The value of your investment could increase significantly. But it could drop significantly, too.
A managed approach to risk might be to diversify your investment across several companies’ shares; so if one company performs poorly and another well, you have not lost all of your investment. This type of asset allocation enables you to manage the unique risks of investing in specific companies’ shares.
You can further dilute specific risks by choosing to invest across different asset classes. This might include investing in other types of financial assets, such as a fund, which is when many investors pool their investment into a portfolio of shares, or other financial products. You may wish to invest in other asset classes, such as property, fine art or precious metals.
When investing, consider creating a balanced portfolio of savings and investments. Having established your personal appetite to risk and how much you are prepared to lose, you can research companies and decide what shares to buy.
Remember that all investments – even the ‘safest’ ones – involve a degree of risk. So choose a range of investments that best suit you.