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Investing doesn't have to be scary, but there are some simple rules

If you want to make your cash work for you but don't know where to start, we've put together some simple rules to put you on the right track.

 

by Michelle McGagh on Jul 18, 2012 at 12:04

Investing doesn't have to be scary, but there are some simple rules

You don’t have to be a tax expert or become a part-time stock-market trader in order to make money from your savings, but there are some simple rules you should follow in order to make the most of your cash.

Chris Davies, head of UK Fidelity Wealth, believes savings and investments do not have to be intimidating, and that if you are willing to spend some time understanding the financial jargon anyone can get a grip on their finances.

Save regularly

Davies first tip is very simple: save regularly. By putting a small amount away each month not only will you get into the savings habit but you will also benefit from compound interest, where interest is paid on the interest you accumulate.

Fidelity is seeing a trend for people using monthly payment plans and dripping money into their savings and investment accounts rather than putting in big chunks of money in one go.

If you are looking to invest money then you must diversify your investments, said Davies. This means spreading your money across different types of investments with different scales of risk, from equities to bonds and cash.

Do your homework

However, before you invest any money make sure you have done your homework. Davies said that lack of understanding will make investing seem more daunting and you will be more prone to making rash decisions.

‘You need to really understand what you are doing. Everyone has a history of buying random stocks because people make rash decisions on a hunch,’ he said. ‘Take the time to look into it; doing nothing is the best course of action sometimes.’

Although Davies recommends using the full Individual Savings Account (ISA) allowance, currently £11,280, he said that worrying too much about taking advantage of every tax break could lead you into a number of risky investments.

Don't be a slave to tax efficiency

‘You can get too hung up on tax – there are benefits to using tax allowances, always use your ISA allowance if you can. Use the allowances but don’t be a slave to them,’ he said. ‘If you tried to use every tax break you’d be invested in every forestry investment and venture capital trust available.’

Getting carried away with exotic investments is something to avoid unless you are a sophisticated and confident investor. Davies warned that ‘just because it glitters does not mean it’s gold’.

He said investors should be wary of any investment that claims to be guaranteed.

‘So many people get taken in by slick advertising and presentations,’ he said. ‘We stay away from guaranteed anything like "absolute return" funds.’

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1 comment so far. Why not have your say?

P Everton

Jul 18, 2012 at 13:07

Your last rule, "decide how much you want to make", is so stupefyingly thick that it defies belief, and is - in any case - inconsistent, if not flatly contradicted, by the commentary that follows. If I were Davies, I'd be pretty annoyed.

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