How to get started in investing

Before you dive into the world of stocks and shares, it pays to do your homework. 

Research, goal setting and self-evaluation will help break in a new investor

Understand the risks of the stock market before jumping in  

By Faith Archer

1:43PM BST 23 May 2014

Getting started in investing can be daunting. Novices tempted by a rapidly rising market should not invest money they cannot afford to lose. Always remember that share prices go down as well as up.

Also consider your financial objectives, your time frame and your appetite for risk.

Do you need income or are you hoping to grow your funds for the future?

Are you targeting rapid returns or is this a long-term investment towards a more comfortable retirement?

Do you have the nerve for the rollercoaster ride of risky investment, or are you aiming for steady, dependable results with less chance of loss?

The combination of personal goals, timing and attitude to risk should drive your choice of investments.

Rather than putting all your eggs in one basket, you might diversify your investments across different companies and countries. Pooled funds, such as unit trusts, investment trusts, open-ended investment companies (Oeics) or exchange-traded funds (ETFs), seek to diminish risks by spreading individuals’ money over many different shares or bonds.

However, since all funds have a different focus – some are geographical, while some only invest in small companies, or in bonds, or equities, it is important that you have a mix of funds as well.

This will help to minimise your risk, and can allow you access to a qualified fund manager who can pick stocks for you. Alternatively you can choose a tracker fund, which aims to replicate the performance of an index, such as the FTSE 100 or 250, and which may have lower charges than a managed fund.

Aim to invest for a minimum of five years and ideally 10, allowing time to ride out any short-term stock market volatility.

Choosing the right funds for you is a matter of research and personal preference. You can use the Key Investor Information documents (KIIDs) and fund factsheets, which will show you the top shareholdings in any fund, as well as its past performance – though be wary of this as it is not a reliable indicator of future performance – to help inform your decisions.

Financial planners can make recommendations tailored to your circumstances – at a cost. Check out unbiased.co.uk for a directory of qualified advisers.

However, changes to the way people pay for financial advice, known as the Retail Distribution Review, have encouraged more people to make their own investment decisions.

If you prefer and are able to do your own research, many websites offer information about company performance, recommend shares and funds, and even provide model portfolios.

Free performance statistics are available on websites such as Morningstarand FE Trustnet, as well as on the websites of leading brokers.

Annabel Brodie-Smith, communications director at the Association of Investment Companies, says: “At the end of the day, there is no substitute for doing your research if you’re going it alone, and are comfortable taking the risks without seeking advice.” But no matter how much you research, you have to keep in mind those risks: you can lose money as well as gain it.

This article is from the Investment Library's 'How To' section

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About the Investment Library

If investors are to take advantage of the new rules set in the 2014 Budget, they need information. That is where the new Investment Library series, in association with Barclays Stockbrokers, will come in.

Whether you want answers to your questions or ideas, you will find articles grouped under easy-to-understand headings. The Investment Library will cover everything from tax efficient investing to how to invest at home and abroad. There will also be sections on subjects such as commodities and emerging markets.

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