Investing your money can be an attractive prospect, with earning for successful investments likely to outstrip and interest you can make by leaving the money in a savings account. This is particularly true with the current economic situation, you could end up actually losing money as inflation may eat into any returns you make.
As with any reward there is a risk attached and it's fair to say that the greater the risk is, the greater the payout is likely to be. As such, it's vital for you to give careful consideration to the prospect of losing some if not all of your money, and how that eventuality might set back your future finances. Ultimately you need to be comfortable with the fact that you may lose money before you can consider yourself ready to start investing. In order to arrive at such a consideration there are 5 basic points you need to consider...
1. Financial Goals
You need to set clear and realistic targets for your money. What are your aims exactly? Are you looking to grow your money, or to perhaps make a regular income? Depending on your requirements, there may be a set amount you're looking to generate.
Further to this, setting goals will help you decide just how much of a risk you need to take, depending on your determined time-frame for the return...
This refers to the length of time in which you hope to grow the investment. By determining how long you want to invest your money for, you'll be able to work out if your goals are realistic or not. Your age and health are important considerations here, as you want to give yourself time to be able to recoup any potential losses that occur. If you’re looking to invest for less than 5 years, you may be better sticking to savings, as 5 years on an investments gives very little time to recover if you suffer losses before you need the money again. Ideally you should be looking to invest for longer than 5 years to have chance of a decent return.
3. Understand the risks
When looking at any particular investment, you need to make am assessment of the risk attached. This will obviously vary by investment, and if in any doubt you may need to consult an advisor. Once you've done this you can decide on how much you want to invest, (and how long for), based on how 'risky' the prospect is deemed to be.
The level of risk may also be influenced by your financial situation. For example if you have savings or other income to fall back on this, the money your investing may effectively be pocket money. On the other hand if you're investing your future pension pot and the volatility in the market is likely to leave you stressed about it, then a high risk investment probably isn't for you.
4. How much can you afford to invest?
Make a good reckoning of all of your financial liabilities before trying to calculate how much you can invest. You're going to need to consider everything you're committed to, such as mortgage repayments, loan repayments, insurance premiums, living costs, and pension contributions. With all of this information you can assess how you might get by in the event of sudden financial hardship. As mentioned above, if it's likely that you might need to fall back on these funds within the next 5 years, then you're probably better holding onto the cash
5. Financial Advice
Plenty of people make decision without expert advice, but being able to make sound judgement requires a lot of time and patience to understand the field. Even then, some people won't feel confident diving straight in and playing with their own money. It's really worth considering getting a consultation with a financial advisor. You can then discuss all of the above points with them in detail, to ascertain the best way forward to grow your funds.