The beginner's guide to investment Are you ready to invest?
Investing your money for the first time is a big step.
But low interest rates on cash savings since the financial crisis have meant that many savers have turned to the markets in the hope of achieving a better return.
Investing means taking risks with your money. This is not necessarily a bad thing – more risk could mean better returns – but if you are going to invest you need to be prepared for the fact that you could lose some, or even all, of your savings.
Before you do invest, it's crucial to assess your finances and make sure that you have the necessary safeguards in place.
As a starting point, here are four things to consider:
1. Pay off any debt
Make sure your debts are under control. The cost of your debt – in interest payments – is likely to outweigh the returns you receive from investments.
Focus on reducing debt to levels that are comfortable to manage or, ideally, pay off all debt before investing.
Find out more: Dealing with debt – the Which? guide
2. Get protected
Make sure you are protected against the possibility that you have to stop working for an extended period of time. Check your sick pay scheme at work to see how long you would be covered for and consider taking out income protection insurance if you are self employed.
Other insurance, like critical illness cover, could also be an option if you have a mortgage or dependents, although this can be expensive.
Life insurance is an essential item you need to take out before investing, especially if you have a family. Your work may offer a death in service benefit, but consider an additional policy, in case you change jobs or are out of work.
Find out more: How to buy life insurance – here we explore all the factors to consider when taking out life insurance
3. Think about retirement
It's unlikely that the state pension will be enough to maintain your lifestyle in retirement.
So it's vital that you start saving into a pension as early as possible. Make sure you're contributing to your workplace pension scheme or a private pension before investing any spare cash – pension savers benefit from employer contributions and generous tax breaks.
Find out more: Pensions and retirement – get to grips with your options
4. Make sure you’ve got savings
Have you got spare cash to fall back on? Before risking your money, you need some core savings – an emergency fund to cover unforeseen events.
The generally accepted rule is to have at least three months' salary in savings before you invest. And make sure that these savings are in a high-rate savings account, by using our unique Which? Savings Booster tool.
- Call the Which? Money Helpline – get personalised guidance on any investment issues
- Different types of investment – take a look at our guide to your options
- Planning your retirement – learn more about pensions and your financial options in retirement
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