Are you considering investing in a stocks and shares ISA but need some guidance? Luckily, ISAs – or Individual Savings Accounts – are a great tax-efficient way to invest up to £20,000 a year. And if you aren’t ready to jump into the stock market on your own just yet, this could be a good first step.
Dan Lane, senior analyst at trading and investment app Freetrade, has put together a few tips to help you prepare before you make the jump.
1. Choose a strategy that makes sense to you
Try to avoid just randomly buying shares to add to your portfolio. Instead, Lane recommends that you spend some time thinking about your financial goals and how much risk you’re willing to deal with.
This will help you decide how to start investing and what combination of assets to buy, such as a stocks and shares ISA, bonds, or even precious metals.
Don’t know much about the stock market? Spend some time researching companies, how stocks grow and what dividends are. The better you know your portfolio, the more comfortable you’ll feel with your investments.
2. Start with low-risk investments
Some investments are more volatile than others. If you’re the kind of investor who is likely to stress every time the market takes a dip, start with lower-risk investments. Diversifying your portfolio also lowers your risk, so look into that strategy as you’re learning your way around the financial market.
3. Invest for the long-term and ignore the trends
Lane advises, “Don’t get too caught up in the headlines and definitely don’t get tempted to mess about with your assets from quarter to quarter.” Investing long-term makes more sense and it will help you keep your eyes on your goals.
Experts recommend looking at least five years ahead when investing. This means a consistent system of buying and holding and keeping your emotions under control when it comes to daily market ups and downs.
4. Don’t get overwhelmed by the information out there
There’s a lot of financial information online. Some of it is good, some great and some simply terrible. Poor advice is just as bad as not understanding the market, so when seeking information, make sure you’re picky with your sources.
“Having more information doesn’t make you a better investor,” says Lane. “All it does is increase the likelihood that you’ll fiddle with your portfolio either through fear, greed or boredom.”
So create your investment plan, set your goals, and keep track of the markets as a way to be informed. But don’t buy into the panic or hype you see in the news. It rarely works and it can cost you dearly.
5. Don’t hold on to too much cash
Liquid assets such as cash are an essential part of any portfolio. Keeping some cash around allows you to take advantage of market dips, and you should have an emergency fund set aside to help you get through unexpected expenses.
But other than that, holding on to too much cash doesn’t make a lot of financial sense. Your money works better for you when you invest it rather than sitting in an account being eaten away by inflation, according to Lane.
