Take stock before buying your share.
With interest rates on cash savings sitting at an average of 0.3%, many people are seeking alternative ways of making the most of their money.
Some, who are looking to put their money away for a few years, will be thinking about dipping their toe into investing.
But what options are available to you? Do you have enough money to invest? What does investing in the stock market mean and do you really want to take the risk?
We chatted to Simon Longfellow, of first-time share investor website Stepstoinvesting.com, to get the basics
What is investing?
Put simply, investing is buying a tiny slice of a company or a selection of companies. This means you become a small shareholder of a company such as Virgin, Apple, Tesco or pub chain Wetherspoons.
Buying a slice of a company is known as investing in 'stocks and shares' or 'equities'.
So how do I invest in stocks and shares?
There are many ways you can invest in stocks and shares. You can invest directly, which means buying shares on an investment platform such as those provided by The Share Centre, Hargreaves Lansdown or AJ Bell. Alternatively you can buy through a financial adviser, who can advise you on where you could invest your money based on your appetite for risk. You can typically start investing from PS50 a month.
So, how do I choose which stock to buy?
People don't usually just invest in one stock or company. That's because you don't want all your eggs in one basket.
And that's why there are products available called funds or investment trusts. These include many different stocks or companies. For example, you could invest PS200 in a fund which will spread your money across a number of firms. These companies are chosen by a fund manager.
Fund managers are investment experts with years of experience. They also have a team of specialists who work diligently to help them choose the best stocks dependent upon the fund's goals.
Is investing in the stock market risky?
You must be aware there is a risk to your money as investments can go down in value as well as up. If you cannot afford to lose money, you shouldn't invest.
Lots of people think investing is as risky as betting on black or red in a casino, but that's a somewhat unfair comparison. In fact,research from AXA shows that over the last two decades, a 10-year investment in UK listed stocks (known as FTSE stocks) had a 95% chance of making money. Perhaps even more compelling is that since 2000, the average return delivered by all UK stocks is 153%. This compares to just 32% from cash savings.
To put this in perspective, that means PS2,000 invested in UK stocks in the year 2000 would have increased in value to PS5,060, whereas if it was left in cash savings it would be worth PS2,640.
How long should I invest for?
Investing is typically for people who are comfortable with tying up their money for more than five years. Preferably you'd be investing for 10 years or more. That's how you achieve the best returns and it will help you to ride out the ups and downs of the stock market.
Where can I learn more about investing?
Investing in the stock market can be a scary prospect.
Stepstoinvesting.com is designed to help educate firsttime investors on the basics. It provides calculators and short animated videos to help give people confidence.
There's also a free portfolio and trading simulator at londonstockexchange.com where you can try your arm without putting any money down.
The Share Centre also has a practice account tool.
Since the year 2000 the average return from all UK stocks is 153%, compared to 32% from cash savings NEED TO KNOW Investing in the stock market