If you’ve never invested before, you may well think it’s just for City slickers with money to burn. Yet when you start to separate the fact from the fiction, investing is now more accessible than ever. Look behind the stereotypes and you never know, it might even be right for you.
Of course, there are risks involved with investing. That’s why it always comes with this rather abrupt warning: ‘you may not get back what you invest’.
But too risky? Before you can answer that, we need to explore how risk works and what it could mean for you.
All investments can be categorised on a scale of risk. At the extreme end of the spectrum, you’ve got your high-risk, volatile investments such as hedge-betting. These are not for the faint-hearted as the value of your original investment can yo-yo all over the place. This means you could gain a lot or potentially lose everything. (We don’t offer this type of investment.)
At the more sedate end of the spectrum, you can find some very low-risk investments, such as what’s known as a ‘cautious’ fund. Invest into one of these and although your investment isn’t without risk, its value wouldn’t typically be expected to fluctuate much. This means you could enjoy a much smoother, gentler ride over time. (We absolutely offer these types of investments.)
Whatever your appetite for risk, there’s an investment out there to match it – from the super cautious to the highly adventurous and everything in between. The key is to understand the risks involved and how can they change over time. That way you can make an educated decision about how much risk is right for you.
Why take any risk at all? Well, in a nutshell, by taking a calculated amount of investment risk, you can give your money greater potential to grow than cash savings.
Well OK, this might have been true in the past. But these days, thankfully, it’s much more democratic. Online fund platforms and online investment advice services have opened up investing to the masses so you can now start investing with relatively little.
If you’re thinking about dipping your toe in the water with us, there a few ways you could do it, depending whether you’d like go it alone or get a helping hand.
If you want to choose your own investments, you can start investing online in funds with a lump sum of £50 and an annual account fee of 0.25% payable quarterly. Or you can start investing online in shares for £10.50 a trade plus and a quarterly account fee of £10.50.
If you’d like us to recommend the investment and level of risk that’s right for you, we offer 3 advice services, each with different fees and eligibility criteria. And the fee for our online advice service is just 0.5%. So if you invested the minimum of £50 per month, the advice fee would only be £3 and the annual maintenance costs for the first year would be around £1.50.
This is another myth that has its roots in a truth (you might be noticing a theme here).
You’ve probably read that an ‘investment should be seen as medium-to-long-term commitment’ or ‘you should aim to hold it for at least 5 years’. This is very sound advice because of the bumpy nature of the stock markets. The longer you hold an investment, the more chance you have of smoothing out the bumps and making positive returns.
The myth is that you have to physically lock your money away. With most investments your money is not locked anywhere. There’s no fixed period you have to invest for and there are no penalties for selling your investments. You can absolutely access your money at any time.
That said, please don’t get the impression you should treat an investment like a savings account.
While it might be good for your peace of mind knowing that you can get your hands on the money if you had to, you really don’t want to have to rely on it. This is because withdrawing early could negatively affect your returns. And the one scenario you desperately want to avoid is being forced to sell when the markets are having a downturn as your investments could be worth less than what you put in.
That’s why one of the golden rules of investing is to make sure you have between 3 and 6 months’ worth of expenses saved in an emergency fund before you start. That way, if your car breaks down while the markets have a wobble, you can dip into your savings to get it repaired and leave your investments untouched so they have plenty of time to recover.
If you invest in shares, it’s good to keep your eye on the markets. Because if one of the companies that you’ve invested in does badly, you could potentially lose money. The price of your share will also be affected by other factors, such as supply and demand, interest rates and the wider economy – all of which you need to be aware of. That’s why our sharedealing platform gives you market analysis, share price alerts and other tools that put you in control.
However, investing is not just about buying shares.
For the rest of us, shall we say ‘less-expert’ investors, investing in funds could be a great way to start. Buying into a fund is like buying a ready-made, off-the-shelf basket of investments. As we’ve already seen, they come in many flavours from the very low risk to very high risk so you can find one that’s right for you.
Also, some funds, such as multi-asset funds, invest in a broad range of assets, such as bonds, shares and property, allowing you to invest into different types of investments. Or, to put it another way, they allow you to put your eggs in lots of different baskets.
Funds can be less risky than buying individual shares in a single company because if one of the investments in a fund loses money, it could be balanced out by the other investments in the fund. Spreading your risk in this way is known as diversification – and it’s one of the golden rules of investing.
But perhaps the best thing about funds is they’re put together by a fund manager – an experienced investment professional who knows more than a thing or two about investing. So you don’t have to be an expert to invest in funds. You’re essentially investing in an expert to do it for you.
As you’d expect from a global bank, HSBC has specialist teams of investment professionals – some who carefully select the investments in the HSBC funds we offer, and others who actively manage them on your behalf – leaving you free to spend your time doing something else instead.
If you’re not confident about picking a fund, why not ask one of our advisers to do it for you? By taking investment advice, you can find out whether you’re even ready to invest, how much you should invest and – crucially – which fund is right for your current situation.
Staying glued to the markets? Most of us can think of things we’d rather do with our time.
This is another reason why multi-asset funds can be a great way to invest. They’re professionally managed to ensure that they stay at your chosen risk level – again, making them less risky than investing directly in shares.
With a multi-asset fund, you can invest and then pretty much forget about it. All you need to do is take a peek every now and then to see how it’s doing. Now that’s low-maintenance investing.
Even if you take the more ‘hands-on’ approach and invest in shares, you don’t necessarily need to monitor them daily. Naturally, you’ll want to track their progress, but most online sharedealing services offer nifty tools to help you do that. For example, you can set up share price alerts so your phone pings whenever a stock climbs above or drops below certain thresholds.
And when you invest with HSBC – whether in funds or shares, you’ll see the balance of your investment account every time you log on to online banking. Monitoring your investments has never been so easy.
There’s a perception that to do well on the markets, you need to buy when stocks are low and sell when they’re high. Investors can spend a lot of time and energy trying to identify when a share price has bottomed out or hit its peak to find the perfect time to buy or sell.
The trouble is, there are so many factors influencing the stock market. Predicting outcomes is practically impossible. That’s why there’s a saying in investing that ‘it’s not about timing the market, it’s about time in the market’.
The important thing is to start as soon as you can and invest for as long as you can. Yes, there will be some downturns, maybe even some bad years but as long as you’re not forced to sell during a dip (see myth 4), you should be able to ride out any turbulence.
Before you start, a key question to ask yourself is how long you’re prepared to invest for. The longer your timeframe, the more volatility you should be able to deal with because you’d have more time to recover from any lows.
If you’re 5 years from retirement, you may want to select a cautious investment. If you’ve got 10 years or more to play with, you may be in a position to be more adventurous. Again, if you’re not sure what’s right for you, you could seek investment advice to get a professional opinion.
This one you already know to be false. There’s no such thing as a free lunch, right? While there are always stories of people making money quickly through risky investments, look at what happened with the Dotcom bubble in the late 90s, what’s happening now with cryptocurrencies. Get-rich-quick investments usually don’t end well.
The fact is, the markets reward long-term investors. What’s required is not passion but a cool, calm head and the discipline and patience to leave your investments to grow.
And this sentiment is best summed up by the famous investor and philanthropist, George Soros:
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
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