5 minute read
Bonus
SESSION 3 BONUS
ARTICLE
HSBC UK https://www.hsbc.co.uk/wealth/articles/beginners-guide-to-investing/
Although savings rates are starting to go up, they don’t match infation. That’s why many people choose investing to help them plan for the future.
But unlike saving, you can’t be sure of what you’ll earn. So if you’re thinking about investing, it’s important to learn the basics and work out whether it’s right for you. This simple guide covers the main types of investments, what you can expect and some rules to remember.
What is investing?
Investing means setting some of your money aside for the future and putting it to work for you. When you invest, you’re buying into something you believe will increase in value over time.
Investing has the potential to generate a better return than a savings account. While your money’s not locked away, you should be prepared to set it aside for at least 5 years to give it the best chance to grow. And keep in mind the value of any investment can jump around so you could get back less than you put in.
What can you invest in? Well, from the more common types of investments – such as gold, property or shares, to the more specialist – such as art, wine or cryptocurrencies, the answer is almost anything.
Instead of overwhelming you with the entire investment universe, let’s focus on 2 well-known ways to invest: funds and shares.
What are funds?
Funds are a ready-made basket of investments. When you invest in funds, you’re buying into a mix of assets, which may include shares, property, government bonds and cash. Funds save you from trying to pick individual investments that you think will perform best.
The great thing about funds is you’re not putting all your eggs into one basket. Instead, your money goes into a range of investments. This is known as diversifcation and it can be an efective method for spreading your risk. That’s because if some of the investments in the fund perform badly over a certain period, others may perform well.
There are 2 main types of funds:
• An active or multi-asset fund is run by a professional fund manager who chooses which shares, bonds or other assets to hold and monitors them on your behalf. You pay extra for the fund manager’s expertise with the aim of receiving returns which outperform the market
• A passive fund or index fund simply follows or tracks a given market or index. As there is no active involvement from the fund manager, passive funds generally charge less in fees
Funds vary in risk from ‘cautious’ funds at the lower-risk end of the scale to ‘adventurous’ at the higher-risk end. If you’re younger, you may have more time on your side to ride out any turbulence so you might want to consider a more adventurous fund.
As you get closer to retirement, your investments could have less time to recover from any dips so a more conservative fund may be more appropriate.
What are shares?
Shares are units of ownership in a company. When you buy shares, you’re efectively buying a small stake in a company. Companies sell shares to raise money, which they then use to expand their business. Investors, known as shareholders, are then free to buy and sell some or all of those shares on the stock market at any time.
If the company performs well - or is expected to perform well - demand for its shares will generally increase, pushing its share price up. If the company does - or is expected to do - badly, its share price will generally drop. Interest rates and the wider economy can also have an impact on share prices.
As a shareholder, the value of your investment rises and falls with the share price. So while the money you invest has the potential to grow, it could also fall in value so you may get back less than you invest.
What do you want from an investment?
There are 2 main ways you might make money from an investment: via growth - also known as ‘accumulation’ - or via an income.
If you’re considering funds, this means choosing between an accumulation or income fund:
• With an accumulation fund, the income generated is reinvested within the fund, meaning your investment would be more likely to grow in value over time
• With an income fund, any income the fund generates will be paid directly to you
Investing for growth could be good if you‘re able to invest over a longer period, as accumulation
funds may provide you with greater returns in the long term.
Whereas investing for income could be a good shorter-term strategy if you’re nearing or in retirement. By choosing funds that pay dividends, you could receive regular payments to boost your existing income or pension.
If you’re considering shares, you also need to decide whether you’re investing with the aim of achieving either growth or income.
Keep in mind, investing in shares can take a lot of research and you’d need to hold a balance of diferent stocks to mitigate the risk of losing money with one particular company. Is investing right for you?
To fgure this out, start by asking yourself a few questions.
Takeaway investing tips for beginners
1. Investing is for the long term – ideally for 5 years or more.
2. The higher the potential rewards, the higher the risk of losses.
3. You don’t need to pick your own stocks – many frst-timers start investing in funds
4. Diversifcation can lessen the impact of one investment performing badly.
5. Start as early as you can so your money will have more time to grow.
Investing is for the long term
Start early
TAKEAWAY INVESTING TIPS FOR BEGINNERS
The higher reward, the higher risk
Diversify funds Invest in funds
JAN - APRIL 2023
Welcome to RTSWS Session #4!
• Be sure you have a pen, pencil or writing utensil • Grab a snack • Get ready to share your name, grade and favorite beverage
RTSWS COHORT NORMS
Let’s review our RTSWS cohort norms. These are the expectations for our RTSWS sessions that we set during session #1.
Norms: The behavioral expectations or rules of the class. Class norms inform us how we are expected to behave towards each other and the materials we use.
• Come prepared to be a part of RTSWS with your handbook, a writing utensil and a positive attitude. • Be kind and encourage one another - we are all in this together! • Ask questions, share your opinions and let the volunteers know when you do not understand something.
