The beginner's guide to investment Are you ready to invest?
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. Read our guide to dealing with debt for more information.
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.
Find out more in our guide How to buy 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.
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.