If you’re new to investing it can all seem complicated. But the basics are fairly straightforward. So we’ve outlined some of the important things you’ll need to know before you invest your money.
Investing is about using your money to try and make more money. Usually this means buying assets with the goal to one day sell them again for more money than it cost you to buy them. The difference is your investment return.
The potential to grow.
When you invest, you use your money to buy assets that have the potential to grow in value. Investments often have more potential to grow than savings in a simple bank account, but they can also go down in value – especially over the short term.
The value of investments can go up and down.
While investments are designed to grow, they can also go down in value. Some are likely to go further up and down, and more often, than others. So it’s important to understand your investment time frame before you choose investments.
Generally, investments with the most potential to grow are better as longer-term investments because the value will usually go up and down more often in the short term. Understanding these differences is what investors call the balance between risk and return.
Thinking about risk.
All investments have a level of investment risk. This is the likelihood that they may go down in value, you might not get back all the money you put in at the start or returns are less than you expected. So before you choose an investment, it’s important to understand your attitude to risk and how it might affect you and your investment.