If you're planning for the medium to long term (at least five years) then investing could help you reach your goal. However, if you're planning to reach your goal within the next five years, or have other aspects of your finances that need attention first, investing is not the right option for you.
Things to consider before investing
It's important that you make sure investing is right for you. You need to consider the following factors before deciding to invest:
- Are there other priorities for your finances?
There may be other financial priorities that you should tackle before investing. For example if you're paying high rates of interest on bank loans and credit cards, you should consider paying them off first. And it's always a good idea to put away some money in an instant-access savings account, to keep you going for at least a few months if there's an unexpected emergency. We strongly suggest you consider whether you have sufficient protection if things don’t work out how you plan, like mortgage protection, income protection and life insurance.
And another important consideration is whether you are contributing enough towards your pension to meet your needs in retirement.
- Do you need the money in less than five years?
You should think about using savings accounts, or even current accounts offering interest for shorter term goals, because you’ll nearly always get back at least what you put in. Investments are designed to produce potentially greater returns over the longer term – the investment industry standard is five years minimum. The longer you’re able to leave your money invested, the more time it has to recover from any dips in its value.
- Do you need a precise amount of money at a particular time?
The precise value of your investment at any point in the future will always be uncertain. If the target you have in mind means that you'll need an exact amount on a specific date in the future, investing may not be the right option for you.
- Are your goal amount and timeframe realistic?
The value of investments can go down as well as up so it's important to have a realistic prospect of reaching your goal. Whether you're planning to invest a lump sum, a regular monthly amount, or both, our investment forecaster can show you a range of potential returns. These returns are not a reliable indicator of future performance. There is no guarantee that these returns will be achieved.
- Are you comfortable with the level of risk?
Investing always carries some level of risk. This means that even if you choose the most cautious investments, they can still go down in value and you may get back less than you invested. It is important to remember that the higher the potential return from an investment, the greater the possibility of fluctuations and losses. If you’re unwilling to risk getting back less then you invested, then investing is not appropriate for you.
- Can you afford to lose money?
Because the value of investments can go down as well as up, you should ensure you can afford to lose money before investing. This means that in addition to any investment you make, you should have sufficient cash available to make sure that your standard of living is not materially affected if your investment significantly decreases in value. If you are unwilling to risk losing some or all of your original investment and regular contributions, then investing is not appropriate for you.