A guest post by The Retired Broker, visit his blog here: http://theretiredbroker.com/
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Thinking of investing some of your cash? Below are some hints and tips to think about before making a decision.
Paying for Financial Advice
First, you have a choice of whether to take financial qualified advice regarding where to invest your money. The key factor here is cost as you will be required to pay for this advice which could cost you 2% which means if you get a return of 2% in the first year you are back to square one! There are a lot of websites out there that can provide you with generic information, it may be best to make the most of these if you decide not to seek qualified advice.
The length of time you want to invest depends on when you might require your money back. The timescale of 5/10 years is regarded as medium to long term, anything less than this is considered short term. Generally speaking, the shorter the term the less risk you should consider taking.
Broadly speaking, there are two places to put your money, deposit and investment.
Deposit accounts of all varieties while reassuringly boring you will know exactly where you will stand and how much you will get with this type of investment. So for example say a fixed bond of 5 years with a fixed rate of 2.4% you will get a return on your investment of 2.4% which could either be paid annually or month. However it may mean in ‘real terms’ it could be lower depending on inflation at the time. The main point to make is that if the interest you are earning is less than inflation then the buying power of your savings will be reduced.
With investment there is no interest, instead you are taking the risk that over time the value of your investment will go up. It can also go down and almost certainly will fluctuate in the middle. Check to see if the advantages of an ISA are worth investing in.
There are good reasons to consider it, but the main decision you have is the underlying stocks and shares themselves. One that invests in blue chip UK shares is generally considered to be a lower risk than one that invests in the shares of India or China. The attraction of the higher risk option is the chance of a greater return over time, but the risk of greater loss is also there. When you invest a lump sum into a stocks and shares ISA, you buy “units” of that investment at the value they are on that day. If this is the route you are considering you may want to look at regular savings options. By “dripping” in your investment you can take advantage of “POUND COST AVERAGING” Here is an article that explains it.
Now let’s me take a step back. There have always been a few guidelines when considering investments:
Clear non- mortgage debt. If you have any non-mortgage debt, then the interest you are being charged will outweigh any returns you may get on your nest egg by far. Consider clearing this debt.
Emergency fund. An emergency fund should be sufficient to sustain your family if the main earner is unable to earn for six months.
Consider clearing mortgage debt. Paying off part of a mortgage will create a monthly saving which then can be used to drip into an investment if you wanted to. You need to play with the figures to see if that is a runner for you.
Make a will. Whatever you choose to do, making a Will most certainly will ensure your plans are likely to go on even if you don’t!
Review your life cover. If you have a family, there would be costs on death so it’s an idea to spend some time thinking about the financial consequences, sort it out to your satisfaction, then forget about it for a few years and then review it again.
Look at pension provision. The pension market has changed beyond recognition over the last few years, but the tax relief still makes pension plans worth looking at.
Children’s future. Think about whether you want to put any savings in your children’s names directly.
Finally, spend some and have fun. None of us knows what’s around the corner and time is a vicious thief, banking a memory now will give a guaranteed return forever!
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