Unsure how to start investing your savings? An expert shares 5 key tips

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Andrew Feinberg

White House Correspondent

Starting an investment habit can feel daunting for some savers. Especially as money held in cash savings often feels like a “safer” option.

But over the longer-term, money held in investments may generate higher returns – although it’s also important to bear in mind that the value of investments can go down as well as up.

Recent analysis from Barclays suggests many people are holding money in cash savings, when they could – potentially – be dipping a toe in the investments market.

The bank, which looked at Financial Conduct Authority (FCA) data to make its calculations, estimates that overall, as many as 13 million UK adults are holding onto £430 billion of “possible investments” in cash savings.

It says the calculation reveals the scale of the opportunity, if more people took the step of investing. Barclays also says that its figures are a “conservative estimate”, as it is based on savers who already hold more than six months’ income in cash savings.

In general, it’s usually a good idea, if possible, to hold several months’ worth of savings as readily-accessible cash – often known as an ’emergency fund’. This is so you have some money within easy reach in the event of a financial emergency, for example if someone loses their job, their personal circumstances suddenly change, or their home needs an urgent repair.

But, why aren’t more people investing?

Further research for Barclays suggests that one in five (21%) people who currently don’t invest say they wouldn’t know how or where to start.

This ranges from 38% of people in the North West of England and 28% living in the Midlands, to 19% of people in the South West of England and just 9% in Northern Ireland.

A fifth (20%) of people in Scotland, London and the East of England say they wouldn’t know where or how to start saving, as do 26% in the South East of England, 27% in the North East, 23% in Yorkshire and the Humber, and 24% in Wales.

Of those who don’t currently invest, more than four in 10 (43%) think it is too risky and are worried they would “lose all their money”.

People in Scotland and Wales are most likely to have this concern, while those in Northern Ireland are least likely, the research among more than 2,200 people carried out by Savanta indicates.

Curious to learn more about starting an investing habit? To help budding first-time investors, Clare Francis, savings and investments director at Barclays Smart Investor, has five key tips…

1. Save for the short term, invest for the long term

Francis says: “It’s recommended that you keep around six months’ worth of monthly take-home pay in cash savings, to cover any short-term needs or emergencies.

“Once you’ve created this savings fund, consider investing any cash that’s left over for your long-term goals, as this could earn you better returns over the long term.”

2. Consider diversifying to ‘spread’ risk

“First time investors will often put all their money in a single company’s shares, but this is quite a high-risk strategy as your fortunes are dependent on the performance of that one business,” says Francis.

“Try to spread your investments across various companies, regions and industries, as this can help even out the size of losses and gains,” she suggests. “If you’re unsure where to start, many providers will offer ready-made investment funds – a diversified selection of shares and bonds that are packaged up into one product, based on the level of risk you’re comfortable to take.”

Make the most of tech to track your investments too – whether it’s in your banking app alongside your current account and cash savings or within the app of another financial services provider.

3. Try to avoid ‘knee-jerk’ reactions

Francis stresses it’s important to try not to obsess over market movements. She says: “One of the main reasons that people don’t invest is a concern that ‘risk of loss’ means risk of losing all the money you’ve invested.

“The reality is that the value of investments will naturally fall as well as rise over time, as markets don’t just move in a straight line.

“Ultimately, it’s time ‘in’ the market that matters, not ‘timing the market’ – try to leave your money invested for at least five years, to give yourself the best chance of riding out any dips.

4. Consider investing little and often

Budding investors can potentially smooth out the risks from investment volatility by dripping smaller amounts of money in over time, so it goes in during periods when markets are up – and when they’re down.

“Many people transfer money into a savings account every month,” says Francis. “When you are starting to invest, you can do the same – setting up a direct debit or regular investment can be a useful way of getting into new habits and help smooth out any nerves around stock market volatility.”

5. Make the most of your tax allowances

The tax year starts on April 6 and ends on April 5, and savers have certain allowances that run over the year, such as the ability to newly save or invest up to £20,000 into a tax-efficient ISA. Some people may want to consider taking financial advice when considering investments.

Watch out for scams…

In addition to Francis’s tips, it’s also important to be on your guard against investment scams, which often start by someone making contact out of the blue or on social media. If you deal with an unauthorised firm, you won’t have the protection of the  Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong.

The Financial Conduct Authority (FCA) has a “warning list” of firms on its website (fca.org.uk). People can also check the FCA’s register of authorised firms.