If you are considering becoming an investor and you’re wondering whether now is a good time to invest in UK investment vehicles, this article can help. In it, we discuss the various investment accounts you can access, the choice between investing long, short or medium term, and how you can best minimise any risk.
| When is the right time to invest here in the UK? | There is no perfect time to invest |
| Is investing risky? | Definitely |
| Examples of the types of investments? | Stocks, bonds, ETFs, ETN, and mutual funds |
| Should I save or invest my money? | It depends on your financial goals and risk profile |
The reasons the stock market has dropped in value
In recent months, the world economy has suffered some severe blows. The global COVID-19 pandemic is partly to blame, and so is the more recent invasion of Ukraine by Russian forces. In addition, the grain shortage, the decision by Vladimir Putin to cut off gas supplies to Europe, triggering enormous energy supply problems and price surges, and spiralling inflation have all combined in a perfect storm of adverse conditions.
Hardly surprisingly, the UK economy, along with many others, has shrunk, and all of these factors have affected stock markets the world over, so we ask, is it a good time to buy shares in the UK or get involved with any other type of investment?
Why short-term investing is risky
Considering all the problems that the world economy has and is still experiencing, the stock markets could be much worse – UK stocks in particular. The FTSE 100 is the barometer for UK investors, and at the moment, the index is trading somewhere around 7,320 points. That is about a 2.5% decrease from where it was at the beginning of the year. But overall, it has been growing modestly since the Covid-19 pandemic took effect back in 2020.
Stock markets will always be volatile. It is their nature. But they usually recover over time, which is why one of the main tenets of investing is to invest long-term. If you invest short-term, there is a much greater risk of losing money, especially if your investment vehicle closes when the market is at a low.
Eight points to consider before you buy stocks and shares
Investing in stocks and shares isn’t for everyone. Share value can fall and rise; if you are entirely risk-averse, it’s probably not for you. But if you are prepared to take some risk, you are likely asking yourself, is now a good time to buy shares in the UK? To help you make a decision, let’s take a quick look at eight things you should consider before diving in.
Setting your investment goals
The first thing you need to do is to define your investor profile. In essence, this means confirming what your preferences are when it comes to making financial decisions. For example, are you risk averse or risk tolerant, and to what degree?
How much can you afford to invest?
Determining the amount you can afford to invest is essential. Firstly, you must ensure that you have enough money to live comfortably. Then, having decided that, you need to consider your short vs long term financial needs.
What investment options are open to you?
Once you’ve decided on your long and short-term needs, you need to consider what type of investment vehicles meet those needs. You can choose from premium bonds (also available for kids), government bonds, private pensions, the property market, cash ISAs, stocks and shares ISAs, ETFs (Exchange Traded Funds), and more.
How best to protect your investments from ups and downs in the market?
Whether you want to know how to invest £10,000 or are lucky enough to ask yourself how to invest £100,000, it’s advisable to pick investment vehicles that offer some mitigation to the fluctuations of the stock market.
Is now a good time to buy bonds UK residents might ask themselves. If it’s minimum risk you are looking for, government bonds or gilts are one of the less risky forms of investment. Bonds are long-term maturity investments with maturity dates anywhere from 1 to 5 years or up to 10 years. However, in times of emergency, you can sell the bonds in the secondary market before they mature.
Other than investing in bonds, the best ways of protecting your investments from ups and downs are to create a diverse portfolio and be prepared to invest long-term.
Knowing how to invest money in stocks and shares
If you are an absolute novice in terms of investing in stocks and shares, you either need to become knowledgeable about how the stock markets works and how to buy and sell shares or find a good, independent financial adviser who is authorised and regulated by the financial conduct authority.
Another avenue is to undertake some research into stocks and shares ISA funds. This type of investment vehicle is perfect for those who either don’t have the time or don’t want to be concerned with the day-to-day stock market fluctuations
Stocks and Shares ISAs are passively managed by professionals, so other than checking how your investment is performing from time to time, you can pretty much forget about it.
Knowing what shares to buy
Even if you become familiar with how the markets work, knowing what shares to buy can be something of a lottery. Get it wrong, and you might lose a lot of money quickly. One of the advantages of an investment ISA (another name for a stocks and shares ISA) is that it contains a wide range of equities.
Bringing this sort of diversification to your investment portfolio is essential. It lowers risk. If you are wondering what is a good investment right now UK residents can opt for, a stocks and shares ISA is right up there.
Opening a general investment account
Another good option to consider before buying stocks and shares is opening a general investment account. It’s another way of reducing risk by investing in several different sectors.
However, a general investment account does not offer the same tax benefits as an ISA account. Unlike ISA accounts with a 25% government bonus and tax relief on the ISA allowance, GIA accounts do not offer such benefits. So, any interests or dividends above the annual personal allowance of £12,570 or tax-free dividend allowance of £2,000 will be subject to income tax according to your tax band. Also, when investments held in a GIA account are sold, any profit above £12,300 will be subject to capital gains tax
One major benefit of a GIA account is that there is no limit to how much you can deposit in a GIA account while the maximum amount you can deposit across all ISA accounts is £20,000 per tax year. So, if you think it is now a good time to invest in individual stocks yourself or invest in property in the UK, a general investment account could make a good long-term investment addition to your portfolio.
Settle on an investment strategy
Striking the right balance with your investment strategy is vital. But being able to access your funds when needed is also critical.
This is another advantage of having a diverse portfolio that contains assets like stocks and shares ISAs and stocks and shares ETF ISAs. Not only is it one of the best ways to buy shares without spending hours agonising over the share price and interest rates, but with most of these types of funds, you can access your money when you need to.
The many ways you can invest money
With the FTSE only 2.5% below its year-start and following a general trend to continue to rise, now could be considered a good time to invest as you can get more shares for your money when prices are lower. But, of course, there will always be an element of risk, so you should be looking to invest long-term in mitigation.
You can invest money in many ways, but knowing how best to proceed is important. If you click on this guide on how to invest money, you’ll find that it contains valuable information covering your short, medium and long-term financial needs.
Four tips to consider for investing in uncertain times
Deciding whether or not now is a good time to invest in UK investment funds in worrying times is always tricky, but here are four good tips you should consider.
- Remain calm. The war in Ukraine is, of course, unsettling, but don’t panic. The FTSE is holding its own.
- Think carefully about your goals. Make sound choices depending on your personal circumstances.
- Take advantage of tax relief. ISA tax wrappers are great for this.
- Invest a little at a time. If prices start dropping, any money you have in savings accounts will be relatively safe, and you can take advantage of falling share prices to buy low and reap the benefits when long-term gains appear.
Seeking reliable financial advice is always worthwhile, but don’t forget to ensure that any financial adviser you approach is FCA-authorised and regulated.
FAQ
Why should I invest?
Investing can help you accomplish your financial objectives and significant life changes, such as purchasing a home or saving for retirement.
When should I start investing?
Usually, earlier is better, and there is no “right” time to start investing. Historically, long-term investing tends to be profitable because the investments stay invested for extended periods and gains compound over time. Timing the market is almost impossible. So get started, as time in the market is more valuable than timing the market.
How much should I invest?
A precise answer can’t be given because it depends on many factors, such as available funds, financial goals and situation, and investment timeframe. However, make sure all your financial obligations are met before investing.
*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.
