What should I consider?
Zack Hocking, Head of Savings and Investments at The Co-operative Investments takes us through the important principles you need to consider before you invest.
Getting the right balance
It’s important to balance out your short term and long term savings, and to allocate the right amount of money to each. You shouldn’t put it all in just one or two pots, and remember, your long term pot needs to last a lot longer.
Short, medium or long term
The length of time you want, or need, to invest for can affect your potential rewards. But you shouldn’t choose just one timeframe. Over your life you’ll need to use all three investment approaches – and these will most likely overlap, because you’ll have more than one goal you want to achieve.
| Long term (10 years or more) |
Medium term (5 to 10 years) |
Short term (5 years or less) |
|---|---|---|
| e.g. retirement fund | e.g. build an extension | e.g. for a holiday |
| Investing in stocks and shares can be better suited to longer periods of time, offering potentially greater returns. With this comes greater risk, but it’s important you accept that as part of your investment plan. | Using a mix of investments as you would for the long term is a good idea, some in stocks and shares and some in cash deposits. This allows you to spread the risk at the same time as achieving your goals. | Because you won’t be saving for long, guaranteed growth at a competitive interest rate is a good option. Make sure you have instant or flexible access to your money – or getting it when you need it might be difficult. |
Balancing risk and reward
Nothing in life is risk-free. Even just crossing the road carries a degree of risk, but sometimes you really want to get somewhere.
Investing is all about balancing the risk you’re prepared to take with your money, with the reward you want to achieve. You should never take more risk than you’re comfortable with but the more risk you take, the greater the potential returns you could enjoy.
There are different types of investments available, which allow you the option of investing with greater or lesser degrees of both risk and reward – only you can decide how you want to balance these out.
Investing regularly
We all have different amounts of money to invest at different times. Perhaps you’ve got a new, better-paid job so you have more money left over at the end of each month? Or perhaps you’ve inherited a larger amount of money which you want to invest for the future? Either way, you want your money to grow and give you the best possible return.
You’ll probably need to use a mixture of regular savings and lump sum investments to reach your goals. There are some investment products which are ideal for putting away a relatively small amount each month and others which are better suited to a larger amount all at once. Investing little and often means you can grow your long-term savings in a more affordable way, and you don’t have to worry about ‘timing the market’.
You must remember that your investments are for the medium-long term, so you should keep enough money available in easy-access accounts to cover any short term needs.
