Exploring investment can feel like a strange and unfamiliar land - that you're not sure you have the skills or appetite to conquer. Fortunately, in order to conquer the world of investment, you don't have to make any enormous and terrifying leaps in the dark - you can just take ten small steps.
1. Work out what you can afford to invest
Investment is about goals, and the first step in establishing how you will hit your goals is working out what cash you can afford to put into your investments. It's best to invest a bit every month, so you drip-feed cash into your investments rather than trying to find the perfect time to invest.
2. Decide your likely end date - so you know how long you are putting your money away for
If your end date is at least ten years or so down the track, investment offers more potential for growth than cash savings, so it should definitely be considered. This is also normally a long enough period for you to be able to ride out the worst of the short-term ups and downs.
3. Set a goal
If you're investing for something specific - such as retirement or a long-term goal like university for the children - then calculate how much money you need by your end date. This will determine the likely growth rate you are aiming for.
4. Understand you are taking a risk
When you invest, you will see the value of your investments fluctuate. Over the long term, these fluctuations often work themselves out, so that over a ten year period, you are likely to see them outperform cash savings by quite some margin. However, this is not always the case - and cannot be guaranteed - so you need to be aware that investment always offers an element of risk.
5. Consider the risk you are happy with
The more growth you need from your investments, the more risk you will need to take. Think carefully about how much risk you can live with. If this means your investments are unlikely to grow fast enough to meet your goals, you need to consider putting more aside each month - rather than pushing yourself to invest somewhere unsuitable.
6. Find the investments that match your risk appetite
Not all investments involve the same risk. It's sensible to reduce the level of risk you're taking by investing in a number of different things, so if the value of one falls, you have others to offset the losses.
For this reason, if you invest in single shares you need a portfolio of several, and it's also a good idea to spread your investment across different assets (like shares and bonds as well as cash) so that if one type of asset suffers, it may be offset by the others.
7. Consider using a fund
The most effective way of spreading risk is often to buy into a fund. These are run by fund managers, who take money from all their investors, put it together, and use it to buy a far larger range of investments than you could stretch to on your own. They will also use their expertise in order to try to pick the winners, but at the very least they are an effective way of spreading risk.
8. Pick a type of fund
Every fund has a mandate - which lays out exactly what sorts of things it invests in, what it tries to do, and how much risk it takes in order to do it.
It may, for example, aim for high growth, and will invest in riskier shares that it thinks are poised for growth. Alternatively, it may look for income, and invest in large blue chip shares that have tended to be less volatile and pay strong dividends. Or it may aim for solid returns and protect against losses, in which case it may invest across a range of assets. You need to decide what's going to suit your needs, and look for the kind of fund that invests in the things you need.
9. Pick a specific fund
There are lots of every kind of fund on the market. Choosing the right one is a case of narrowing down the type you need, and then looking for recommendations. There are some useful places to start - including the Hargreaves Lansdown Wealth 150 - which lists its recommended 150.
10. Consider using a professional
Advice will cost you, but could well be worth it. An adviser will run through what you can afford to put aside, what your goals are, and the investments that will get you there. They will also assess your risk tolerance, and match their recommended fund to the risk you are happy to take. In essence they will take you through each of these ten steps - and provide a guide to the strange new world of investments.