There are lots of reasons why people put off investing.
If you’re considering whether it’s the right time for you to take the plunge, then unfortunately there is no one-size-fits-all answer we can give you.
Only you can decide what to do with your hard earned money… but when making that decision, there are a few important questions you can ask yourself to help guide you on your personal finance journey 🧭
So here are four questions to consider before investing.
1. Have you cleared any high-interest debt? 🥵
There are few things quite as crushing as the feeling of unmanageable debt.
Just to be clear. We’re not talking about student loans here.
Those can be one of the cheapest ways possible to borrow money over the long term, and it can actually make better financial sense not to pay them off immediately... but that’s a wider topic, for a different article!
We’re referring to debt like an overdraft that you just can’t seem to get out of, or rolling credit card debt that’s accruing interest on the amount owed.
If you’re in this financial situation, you’ll know that those overdraft fees or interest payments can all but nullify your best attempts to pay off the debt 📈
So before thinking about investing you should consider starting with a clean slate, by consolidating your debts in order to get a more manageable rate of interest. Failing this, it's at least sensible to prioritise loans with the highest interest rate (referred to as the 'Annual Percentage Rate', or APR).
2. Have you created an emergency fund? 🚨
Emergency funds let you make lemonade… when life gives you lemons 🍋
To put it another way, an emergency fund is simply an amount of money that’s safely put aside, but quick to access should the worst happen 🧑🚒
The fund basically acts as a safety net, allowing you to ride out financial storms with less risk of falling into problem debt. When things go wrong, it's all too easy to rely on a credit card or a high-interest loan to bail yourself out of trouble in the short-term and compromise your financial future.
Having enough money at hand to pay 3–6 months worth of your basic living expenses (as a rough rule of thumb) means you’re covered even if you were to suddenly lose your job, or are faced with unexpected expenses.
And it’s not just about safeguarding against redundancy either. Budgeting so that you have money set aside like this is a good way to make sure that you’re the one in the driving seat of your own life 🚗
It’s your life, and personal finance is also about personal freedom. Before you think about tying money up in investments, it’s worth taking the time to ensure you have a buffer in place for whatever life may throw at you in the short term.
3. Have you set clear financial goals? 🥅
Before committing to any course of action it’s always worth setting clear objectives. This helps determine what success actually looks like 🎊 and is really important when it comes to financial planning and investing strategy.
There’s no right or wrong way to invest, but before you start it’s important to have a clear idea of your investment strategy. This could be focused on building up a down payment on a property, or create a retirement plan.
Selecting investments is highly personal, but a good place to start is by considering how soon you think you might need to access the money ⏳
Your retirement account will naturally be a long term investment, but you may also have more immediate requirements to think about. Being clear about this helps you find the best ways to make your money work for you.
The next thing for you to think about is the risk tolerance that you feel comfortable with 🎲 This will often be closely linked to the longevity of an investment, and dictate your potential rate of return too.
There are many different types of investment options, but by evaluating them based on the time horizon involved and the risk vs. potential reward, you can begin to hone in on the type of investment choices that may be right for you.
Some of the most common classes of investment assets are stocks/shares and bonds. Broadly speaking, stocks tend to be more volatile in the short-term (though they can offer the potential for higher returns), whilst bonds are often considered more predictable (albeit with a lower return on your investment).
4. How hands-on do you want to be? 👐
If you’ve made it this far, then chances are you feel ready to start investing 📊
The next decision is really about how you want to manage your investments, and more specifically, how involved in that process you really want to be.
There are many different investment platforms out there, with some offering the facility to pick individual stocks. That’s great if you spend your days studying the financial markets, but for new investors or first time investors the sheer choice available can all become a bit daunting.
We designed our Plum investment app to be super simple, so you don’t have to be a stock market whiz to get started 🤓 Rather than expecting you to pick individual investments, we’ve done the hard work for you, and instead offer a range of investment funds.
Our mutual funds and index funds are professionally managed portfolios containing lots of different assets, and meaning the risk is spread through diversification (or asset allocation, as it’s sometimes called).
If you feel ready to invest, then the concept of diversification is an important one to understand. Creating a diversified investment portfolio is a way to spread risk in the hope that if the value of some investments go down, these would be counteracted by other investments which have increased in value.
Finally, remember that your capital is at risk if you choose to invest.
The benefits of an investing app
Investing apps like Plum are a great way to harness the know how of many different fund managers and apply this to your own investment account.
Plus, in the case of Plum, our app also packages this in a neat User Interface (UI) which makes managing your money and keeping track of your investments easy and intuitive 🤩Download Plum