Here are a few things to consider when deciding whether to invest.
There’s a misconception that investing is about trying to time the market. This means buying when prices are low and selling when they’re high. But no-one can know for sure what the markets are going to do.
Rather than trying to time the market, it’s better to focus on time in the market. Most investments are described as a medium to long-term commitment. This is because the longer you invest, the greater your potential for making a profit. You should aim to invest for at least 5 years.
Historically, markets tend to rise over time. There may be short-term fluctuations – even some losses along the way. But if you have an easy-access emergency fund to cover any unexpected costs, you'll be less likely to have to sell your investments during a downturn. And you’ll be able to give your investments time to recover from any losses.
Remember that past performance is no guarantee of future returns. Markets can go down as well as up and there’s always a risk you could get back less than you put in.
Savings accounts are generally seen as the safest way to save. However, interest rates can go up or down. When interest rates are low, the rate of interest you earn on your savings might be less than the rate of inflation. This means the money you save buys you less over time.
If you don’t need to access your money for 5 years or more, investing gives it greater potential for beating inflation than savings. Keep in mind – no investments are without risk. But in return for a certain degree of risk, you get the opportunity to make your money work harder.
Explore: Saving vs investing
When you invest, the value of your investment will change in response to what’s happening in the markets. These short-term fluctuations are a normal part of investing.
One way to make the ride less bumpy is to diversify. This is when you place your money in a range of different investments, rather than just one. The idea is that losses to one investment could be offset by gains to another. It’s more commonly known as ‘not putting all your eggs in one basket’.
The good news is you don’t have to be an expert investor to diversify. You can do it by buying into a ready-made portfolio. Also known as multi-asset funds, these types of investments are designed to stay within your chosen level of risk.
Another way to help beat volatility in the market is to invest some money each month. This averages out the price of the investments you buy. In months when the markets are down, your investment will buy more units. And in months when markets are high, you’ll buy less – but profits might be greater.
When you invest regularly, it also reduces the risk of investing a lump sum when prices are overly high and susceptible to a short-term fall. And you’d be surprised at how the value of your investments can add up.
With HSBC, you can invest in a ready-made portfolio with a lump sum of £50 and regular payments from £50 per month after your first investment. Eligibility criteria and some fees apply.