No one likes a know-it-all, but when it comes to investing, there are definitely some things that you do need to know.
In this article, I break down some barriers and unravel some key topics you should be comfortable with before you start putting your money into the market.
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Important things to know about investing
From a distance, the world of investing can seem a bit scary. But fear not, it’s not as cutthroat a place as you might imagine. But it can certainly be much easier to navigate with a solid foundation. So with the following five nuggets of information in your arsenal, you’ll be an investing gunslinger in no time!
1. Pick the right platform
One of the most common barriers to setting off on your investment journey is not knowing where to take that first step.
If you wander into the wrong platform, it might really make you hesitate or even put you off completely. So if you’re brand new to the world of investing, try to find an intuitive and simple platform that you can get to grips with easily.
We have put together a shortlist of top-rated investment platforms for beginners. The services you find here are a breeze to use, making it much easier to get started.
2. Understand investing fees and costs
Picture a relaxing Sunday morning. You have a coffee in your hand whilst doing a quick check on your investments and then wallop! You’ve been stung. But instead of bees, it’s pesky fees that have done the damage.
The fees and costs you pay when you invest can have a massive impact on your returns. So it’s really important that you understand all the fees involved. Otherwise, you could end up with an unpleasant sting that leaves a bad taste in your mouth.
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3. Be familiar with how risk works
This isn’t a reference to the popular strategy board game. Investing risk isn’t about conquering your fears (or your rivals). It’s an area of investment that is often misunderstood.
There is a misconception that you have to take on lots of risk if you want to make money. In reality, being a risk-averse person can actually benefit you when it comes to investing.
It’s vital that you understand your own tolerance for risk and then assess any investments to make sure they match your appetite before diving in. The phrase ‘appetite’ is used frequently when referring to risk. Just like you wouldn’t order a dish that makes your stomach churn, don’t make an investment that gives you a similar queasy feeling.
4. Make use of tax allowances
Seeing those three letters that combine to read ‘tax’ might induce an involuntary yawn. But taxes are not to be underestimated when it comes to becoming a successful investor.
Paying less tax on investments means you make more money – it’s as simple as that. One of the best ways to shield your gains from tax is to use a stocks and shares ISA. This will let you invest up to £20,000 each year without incurring a hefty tax bill if the value of your portfolio increases.
Aside from this, you have a capital gains (CGT) tax-free allowance. This means you can earn up to £12,300 from your investments each year before tax is due. You also have a dividend allowance of £2,000 every year. So if you combine all of these and use them to your advantage, you’ll be in a great position to minimise any tax payments.
5. Find good investments
This may be the Holy Grail of the investing world. But you don’t need to be Indiana Jones to discover good investments.
Platforms aren’t allowed to give you advice on this adventure, but there are plenty of ways to stay on the right path. The Holy Trinity of sound investment funds involves diversity, low fees and a strong track record.
If you’d rather choose individual companies, The Motley Fool UK’s Share Advisor service is a great way to help you sniff out top choices. Just remember that with any investment, past performance doesn’t dictate future results and you may get out less than you put in.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.