Want to start investing into an Isa? These are the three questions you need to ask yourself
For a total newbie, the world of investing can seem daunting: all the risks, all the jargon, all the different ways to invest. But if you have decided that you have some spare cash that you want to invest, you can clarify most things by asking yourself these three questions.
1. How long do I want to invest for?
This, along with your attitude to risk, will determine how much risk you want to take in the search for better returns on your money, and therefore what you invest in.
The Money Advice Service reckons that if you don’t need your money for five years then you may want to consider investing it, rather than keeping it as cash in a savings account.
If you are just investing for five years then you can’t take on as much risk as you could over 25 years. Stock markets have had a rocky couple of decades so if you want to put a lot into shares or funds then you should really be in it for the long term.
See our breakdown of the various asset classes here.
2. How do you want to invest – a lump sum or regular amounts?
Those lucky enough to have a very large lump sum should take financial advice before investing it.
For smaller lump sums, you still need to proceed with caution, particularly with the stock market: if you put your money in at a bad time, before a big drop in share prices, then you could be looking at losses that will take years to recover from.
This is where investing a small regular amount each month spreads the risk: you are buying at various points in the market’s ups and downs, and as long as there are more ups than downs over the term of your investment you should come out on top.
Especially because when the market falls you will be buying more shares or units at the lower price, which should later recover to turn a profit.
Note that you can put money into a cash Isa to use your annual allowance and switch it into an investing Isa as and when you want.
3. How involved do you want to be?
Let’s face it, it can be hard enough to find time to change the bedsheets, never mind regularly overhaul your portfolio.
If you think you have the time, and the aptitude, to do your own research, choose your own investments, and monitor your portfolio, then you might want to go for one of the DIY investing platforms that offer little or no advice.
You open your Isa online and choose the shares or funds that you want to put in it. If you are not totally confident choosing and diversifying your own portfolio then there are various so-called "balanced", "diversified" or "multi-asset" funds out there that do it for you.
If you want your hand holding more than that then there is a growing range of online wealth managers that offer "robo-advice".
They profile your attitude to risk and your goals and suggest a portfolio. They vary in their level of advice and sophistication, and in their fees, and the jury is still out on how they compare to traditional financial advisers.
But they are certainly cheaper than their "real life" counterparts who you can meet face-to-face and pay for advice. The value of investments and the income from them can go down as well as up, and you may not get back the amounts originally invested.