Plenty of people are starting to invest, either to make some extra money or to save up for a future financial goal. Following the COVID-19 pandemic, thousands more started using online investment platforms. The online investment firm, IG Group reported over 96,900 new customers last year, raising the number of active traders to 239,600. This is unsurprising, given how the pandemic has left us cooped up at home and with plenty of spare time on our hands. So, if you’re thinking of doing the same, don’t rush into it just yet. First, you need to know about the following things that you need to factor into your investment strategy:
1. Financial Status
First and foremost, consider your financial situation. Do you actually have any savings? Have you put aside an emergency fund? Are you currently in debt? Note that as a general rule, you should pay off your debts before putting funds into your savings or investments. Start with the more expensive ones, like credit card debt and unauthorised overdrafts, to get them out of the way as soon a possible. While it might seem like a tedious task to get out of the way first, it’s a wise move for any potential investor. Because once you’re no longer in debt, you’ll have the freedom to save more and invest more.
2. Income Level
Apart from your financial status, you should also consider how much you earn monthly. The average salary in the UK is £585 per week, or £30,420 per year. There are variations to this figure depending on your age, gender, occupation, and even region. Regardless, experts recommend setting aside 30% of that amount to savings, some of which can be invested. The rest of it will go to your expenses (50%) and a discretionary budget (20%). If you’re hesitant to make monthly contributions, you could opt instead for lump sum investments. This is ideal for investors who have more sizeable savings.
3. Current Age
It’s never too late to invest, but it’s generally recommended that the earlier, the better. By investing in your 20s and 30s, you gain the advantage of long-term capital growth. Plus, you have time on your hands, so you have more freedom to invest in riskier options and maximise their opportunity for growth. Should you incur a loss, you’ll have plenty of opportunities to make up for it. Additionally, exploring investments early grants you valuable market knowledge that you can use to continuously improve your strategy. Though being young is an advantage, you can still make sizeable gains from your investments at any age — just make sure you understand your risk level.
4. Personal Risk Level
Your personal risk level refers to the amount of risk that you’re willing to take when building your investment portfolio. Depending on your preferences, you could choose to invest either conservatively, aggressively, or somewhere in the middle. This provides you with an idea of what you should invest in and what you should steer clear of. For example, if your risk assessment test results in a conservative personal risk preference, then you should consider investing in bonds or properties and have a well-diversified portfolio. Those on the more aggressive side can opt for stocks or cryptocurrencies. Many Brits, for instance, are interested in buying shares of big name companies like Tesla, Apple, and Netflix, and you could look into that for your own portfolio.
5. Investment Goals
One of the most important considerations is, of course, your goal. Ask yourself: Why are you saving up? By deciding on your financial goals, you’ll gain more clarity in how you want to invest your current capital. Many people choose to invest so they can add to their retirement fund. Saving up for your golden years early on is a good idea as it allows more time for your investments to accumulate in value. And in the years before you retire, you’ll have the option to gradually move your earnings to less risky investments, protecting your retirement funds from a sudden market crash. Other people invest so they can save up for things that come before retirement — their first home, their family, graduate school, and plenty of other choices. Whatever you decide on, make sure to note when you want that goal to become a reality and how much you’ll need for it, because that’s going to dictate your investment strategy.