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Are you ready to invest?

Investing your money for the first time is a big step. In this guide, our experts will help you decide whether it's right for you.

In this article
Why do you want to invest? Pay off any debt Make sure you’ve got savings
Get protected Think about retirement Start investing

Low interest rates on cash savings since the financial crisis have meant that many savers are looking for 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're 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. 

In this short video, Which? editor Harry Rose suggests four things to consider as a starting point. 

Why do you want to invest?

Your financial goals should determine whether you invest or keep your money in cash savings.

In general, you should be prepared to part with your money for at least five years, to give your investments a better chance of riding out dips in the market.

Here some typical examples of financial goals and investment considerations:

If you're not sure about your financial goals, or whether you want to risk your money, talk to a regulated financial adviser

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.

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.

Make sure that these savings are in a high-rate savings account, by using our unique Which? Savings Booster tool.

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, such as critical illness cover or life insurance, could also be an option if you have a mortgage or dependents, although this can be expensive.

We have put together a series of comprehensive guides on insurance, which includes explanations of how it works, and the different types. 

Think about retirement

It's unlikely that the state pension will be enough to maintain your lifestyle in retirement. 

In 2019, we found that a typical individual retiree would need £20,000 a year to live comfortably (£27,000 for a couple) – or £33,000 a year (£42,000 for a couple) if you want luxuries such as a long-haul trip every year and a new car every five years.

To generate this income for a typical 20-year retirement, you would need to have saved £232,230 for a comfortable retirement or more than £481,250 for a luxury one. Those eligible for the maximum new state pension currently get £168.60 a week (£8,767 a year) – less than half the target amount for a comfortable 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. 

Start investing

If you feel like you're ready to invest, take a look at our investment guides which includes explanations of how investing works, and the different options available to you. 

Investing within a stocks and shares Isa means you won't have to pay tax on any profits you make.

Fund supermarkets can offer ready-made portfolios for different risk appetites, within stocks and shares isas. You can read our reviews of the best and worst here.

 

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