What investment approach is right for you?

Your decision can have a big impact on your returns

Should you invest all of your money in one go or drip-feed it into the stock market over time? The answer will ultimately depend on whether you have a lump sum to invest or not, but it can have a big impact on your returns. Your decisions will invariably be based around your circumstances, attitude to risk and where you are investing your money and why.

Choosing investments

What you need to know to become a more confident investor

Before you choose or make any investment decisions, you need to know that investing involves the possibility of loss. These key considerations help you become more confident about your investment decisions.

Appetite for risk

Striking the right balance is important to avoid losses

While diversification is important, you should keep in mind how much risk you are prepared to accept on your money. If it is important to you to avoid losses, you may want a portfolio that has less in shares and more in cash and fixed interest securities held to maturity, for example.

Portfolio diversification

Spreading your money between different kinds of investments

Diversification, the spreading of your money between different kinds of investments (‘asset classes’) and different kinds of investment product, helps reduce the risk of your overall investments (referred to as your ‘portfolio’) under-performing or losing money.

What are your investment options?

Helping you reach your long-term financial goals

In the current economic climate, with interest rates still around record lows, investing in the markets could enable you to achieve an inflation-beating return and help you reach your long-term financial goals.

If you’ve got sufficient money in your cash savings account – enough to cover you for at least six months’ worth of living expenses – and you want to see your money grow over the long term, then you should consider investing some of it.

The right savings or investments for you will depend not only on your current finances and future goals but also on how prepared you are taking risks.

Before even considering investing your money, you need to be comfortable with the risks involved. The action or process of investing money for profit can take many forms, but most people typically choose from four main types of investment, known as ‘asset classes’.

  • Cash – the savings you put in a bank or building society account
  • Fixed interest securities (also called ‘bonds’) – you loan your money to a company or government
  • Shares – you buy a stake in a company
  • Property – you invest in a physical building, whether commercial or residential

There are also other higher-risk types of investments available too, including:

  • Commodities like oil, coffee, corn, rubber or gold
  • Foreign currency
  • Contracts for difference, where you bet on shares gaining or losing value
  • Collectibles like art and antique

Investment returns

Depending on where you put your money, it could be paid in a number of different ways:

  • Interest (from cash deposits and fixed interest securities)
  • Dividends (from shares)
  • Rent (from properties)
  • The difference between the price you pay and the price you sell for – capital gains or losses

There’s no such thing as a ‘no-risk’ investment

Understanding the risks you’ll encounter when investing and deciding how much risk you are willing to take is fundamental. You might have a long time frame, and plenty of cash to fall back on, but if you don’t think you would be comfortable if the markets became volatile, a high-risk approach probably isn’t for you.

There’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types
of investment.

Even money you place in secure deposits such as savings accounts risks losing value in real terms (buying power) over time. This is because the interest rate paid won’t always keep up with rising prices (inflation).

On the other hand, index-linked investments that follow the rate of inflation don’t always follow market interest rates. This means that if inflation falls, you could earn less in interest than you expected.

Stock market investments may beat inflation and interest rates over time, but you run the risk that prices may be low at the time you need to sell. This could result in a poor return or, if prices are lower than when you bought, losing money.

Spreading your risk (called ‘diversifying’) by putting your money into a number of different products and asset classes is one way to reduce risk, so if an investment doesn’t work out as you had planned you’ve still got exposure to others.

Asset Mix

Even the best-planned portfolios need to be reviewed regularly

It goes without saying that everyone should take some time to review their portfolios every once in a while. The only constant in life is change – and chances are your life has changed since you last reviewed your investment portfolio.

Planning for the future

Why it’s important to know your start and end points

Reaching wealth goals and achieving personal ambitions are major objectives of the financial planning process. In order to make plans for the future, you need to know where you are today and where you want to be in the future.

New State Pension

How much will I get under the new State Pension?

The State Pension changed on 6 April 2016. If you reach State Pension age on or after that date, you’ll now receive the new State Pension under the new rules. The aim of the new State Pension is to make it simpler to understand, but there are some complicated changeover arrangements which you need to know about if you’ve already made contributions under the previous system.

State benefit confusion

Families could be missing out on thousands

Half (49%) of parents are confused by the array of state benefits available to them, and many don’t claim them even though they are eligible according to figures from LV=’s 13th Cost of a Child study.