The beginner's guide to investment Are you ready to invest?

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Before you consider investing, make sure you've repaid debt as well as having savings, income protection and a pension in place

Taking the decision to begin investing your money is a big step. Many of you are doing so in order to increase the capital value of your money or to get an income and maintain the level of your savings. 

Investment means introducing risk to your money. This is not necessarily a bad thing, as increased risk can help you grow your cash. But, conversely, there is the possibility that you could lose some, or all, of your money.

There are four key activities that you must undertake before considering investing your money:

1) Sort out your debt

It's imperative to ensure that your debts are under control before considering investment. Debt is generally much more expensive to service than the returns you'll get from investments and large debt repayments may stop you from reaching your financial goals. 

Additionally, if you do lose money by investing, you risk defaulting on your debt repayments. Focus on reducing debt to levels that you're comfortable to manage or, ideally, pay off all debt before investing. 

Go further: Dealing with debt - this guide offers a wealth of tips for effectively reducing your debt 

2) Get protected

Make sure your finances are protected if you cannot work due to illness 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 if you become seriously ill, could also be an option if you have a mortgage or dependents, although this can be expensive.

In addition to this, life insurance is an essential item you need to take out before thinking of investment, 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. 

Go further: How to buy life insurance - here we explore all the factors to consider when investing in life insurance 

3) Think about retirement

One of the biggest problems in the UK is that people are not saving enough for their retirement. Relying on the state to provide a pension for you in older age may not be enough to maintain the lifestyle you have now or leave you comfortable in retirement. 

It's vital that you start saving for your later years as early as possible. Make sure you're contributing to your employee pension scheme or a private pension before investing any spare cash – pension savers benefit from employer contributions and generous tax breaks. 

Go further: Employee pension schemes - learn exactly how these schemes work and the various benefits associated with them  

4) Make sure you’ve got savings

Have you got spare cash to fall back on? Before introducing risk to your money, you need some core savings as an emergency fund for those unseen events. 

The generally accepted rule is to have 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.

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