If you're tired of low interest rates on savings accounts, it may be time to start thinking about investing your money. It can be an empowering and rewarding experience, but it pays to master the basics before you enter the market. Before you get started, take a look at these essential tips.
Wrapped or unwrapped?
A 'wrapped' investment means your money is invested under an initiative, usually an ISA (Individual Savings Account) or SIPP (Self Invested Personal Pension), which allows tax-free savings. Often people invest in these through a bank, but it's perfectly acceptable to do the investing for yourself. What's more, there are plenty of platforms that are keen to help you do so.
If you've reached your yearly ISA or SIPP allowance or just don't want to use it, your investments will be 'unwrapped'. That means you'll have to declare, and pay tax on, your profits.
Investing doesn't always mean building a share portfolio. There's also the currency exchange where you can bet on exchange rates, you can buy into funds that track markets, or buy shares in exchange traded products (funds that are floated on the stock market), as well as gilts and bonds, which cap gains in exchange for reducing the risk of losses.
Often a portfolio is 'balanced' by mixing shares with less risky products like bonds. Consider how much risk you want to take, and if you're not sure how best to achieve your goals, don't be afraid to talk to an advisor.
Choosing a platform
It's not just market prices that go down as well as up - the fees and commission you pay your broker and/or fund manager can vary too. On the plus side, this is one cost you have control over, and a well-researched decision can help you to hang on to your profits.
Some platforms charge flat trading fees, some take percentages of your investment pool, and others do both. Which you pick will depend on how frequently you trade, how much you invest, which products you choose, and how long you plan to invest for. Websites like Compare Fund Platforms and Monevator can help you make an informed decision.
Buying and selling
Once you've chosen a platform, buying and selling is easy. It's a simple matter of filling in a sign-up form and then 'shopping' for your financial products. Online platforms like Interactive Investor and The Share Centre let you set up a 'research' or 'practise' account to get used to their system. Make the most of these to familiarise yourself with the process - there's no substitute for experience.
Tips and tricks
Most platforms share news, tips and ideas, so sign up to as many newsletters as possible to avoid being left behind. eToro is another fantastic tool. Billed as a 'social trading network', eToro lets users 'follow' current traders. You can see where people put their money, track their gains and losses in the short and long term, and even copy their trades. The site also offers free practice tools and training.
Tracking your finances
Online platforms all allow you to track the progress of your investment. But if you want to combine your investment gains with your bank accounts, bills and earnings to get a clear view of your monthly finances, then try our free budgeting software. And don't forget to let us know how you get on, either on Twitter or in the comments below.