How to get going and start investing in 2022

Every now and then you hear about someone who has made a small fortune by investing. But what exactly does that mean and how can you start investing?

Investing simply means using the money that you currently have to create longer term wealth. By putting your money into some kind of investment, there is a possibility that the value of the investment will grow over time, and therefore your money will also increase accordingly.

In this article we take a look at:

• What kind of things people invest in.
• The pros and cons of investing.
• How to get started in investing.

What kind of things do people invest in?

The most common type of investment is in stocks and shares.

A share is part of the value of a company. When you buy a share in a company, you become a part owner of that company. For example, if your share was worth 1% of the company’s value, you would actually own 1% of the company. As the overall value of the company changes, the value of your 1% would also change.

Companies use shares to help them raise money to run the company. By selling you shares they get your money, and you are entitled to share in any profits the business makes.

Shares can be bought in public or private companies, but most share investments are in public companies. Public companies are listed on the stock market. The term stocks refers to the overall concept of company ownership, wherasthe term shares describes ownership of a specific company.

There are also all kinds of other investments, including funds, bonds, property, new businesses and specialist items such as art, wine, or vintage cars.

But in this article we will focus on stocks and shares. 

What are the pros and cons of investing?

Pros

• By investing in shares, you could make a lot of money if the company does well. This is particularly true if you are able to invest the money for a long time, and give the business a chance to overcome difficulties along the way. You would release your investment by selling your shares and benefiting from any profit they have made.
• As well as a longer term investment, many companies pay out dividends. Think of these as mini bonuses where you could earn a little reward for every share you own. Dividends are usually paid quarterly and you do not have to pay tax on your dividends if either their value comes within your personal tax allowance or your annual dividend allowance which is currently £2000.
• It is easy to get started on your investment journey, and you don’t need a huge amount of money to do so.

Cons

• The value of shares can go down as well as up, so it is very possible that you will lose money on your investment. This is a particular risk if you are not able to commit the money for a long time. You could end up with less money than you started with.
• If you are in a difficult financial situation to start with, investing in shares may not be the best way forward. For example, if you need to clear some debts or have large financial commitments such as a mortgage to pay, you would be better off using your money to sort those out rather than risk losing it.

How do you get started and start investing?

There are several ways to do this but we will focus on two: 

• A stocks and shares ISA.
• Direct investment in shares.

A stocks and shares ISA

An ISA is an Individual Savings Account which enables you to save up to £20,000 a year and pay no tax on the interest. Many financial providers such as banks and investment companies offer a range of ISA products.

The two main types of ISA are a cash ISA or stocks and shares ISA. A cash ISA is similar to a savings account, but a stocks and shares ISA invests your money in stocks and shares. 

So a stocks and shares ISA is a riskier option than a cash ISA because its value could go down as well as up. But on the other hand it could provide you with a much better rate of return than a cash ISA, particularly if you are prepared to leave your money in it longer term.

When starting off in investing, the advantage of a stocks and shares ISA is that you don’t have to make investment decisions yourself. This will be done by the financial provider you obtained your ISA from.

Direct investment in shares

If you want to have a go at buying shares yourself, one of the easiest ways to do this is either through your bank or through an online share dealing platform such as Hargreaves Lansdown, eToro or IG.

You then need to decide which shares to invest in. There are a few important do’s and don’ts here:

Do . . . 

• as much research on a company as you can before investing in it. You need to understand how it has been performing recently, what its plans are for the future, and how are the market conditions in which it is operating.
• review your investment portfolio regularly. You need to see which shares are making money and which are not. As we have seen, investment in shares should be viewed as a long term prospect, but if there is a company which is obviously in trouble and not worth keeping your investment in, you should consider moving your money elsewhere.

Don’t . . .

• put all your eggs in one basket. Spread your investment over a number of different companies and also a few different industry sectors. This gives you a better chance of making some money even if one company gets into trouble or the economy is not favourable for a particular business sector.
• invest more than you can afford to lose. Always remember that share values can go down as well as up, so you can’t rely on being able to get your hands on all your money if you need it for some kind of emergency. Also the stock market has sometimes been known to crash and you could lose a lot of money very quickly.

We hope that this article gives you some pointers about how to get started in investing if this is something that is of interest to you in 2022.

Good luck with whatever you decide, and remember to check back here soon for more financial and lifestyle tips from Munzee Loans, the direct lender with a difference.