How Should You Invest Your Money?
Managing your finances
Managing your finances can be tough, and right now you may be wondering “how should I invest my money?” For many, simply relying on making regular savings may not be enough to grow your money in the medium to long. The cost of living increased sharply across the UK during 2021 and 2022. The annual rate of inflation reached 11.1% in October 2022, a 41-year high, before easing in subsequent months. It was 7.9% in June 2023.* As a result, savings now risk losing value in ‘real’ terms and many now seek to find new ways to grow their wealth. We believe now could be one of the best times to start making investments if you’re in a similar situation. In this article, we explain the different approaches you can take to invest your money into the stock market, and how to set realistic goals for yourself.
In order to explore the question ‘how should I invest my money?’ further, first you need to understand what investing is, and how it works.
What is investing?
Investing means putting some of your money into an asset such as a stock, bond or fund. To start off, you'd usually create an investment account such as a Stocks and Shares ISA. This is your portfolio where you manage your investments and give them time to grow. When investing, you expect the value of your chosen asset(s) to increase in price over time and generate a higher return than a traditional savings account with a low interest rate. It’s important to note that your capital is at risk when you invest and you could get back less than you originally invested.
Next let’s consider how you could invest your money to match your ambitions. Here, we’ll focus on setting the right goals.
Is investing right for me?
Before deciding whether or not investing is right for you, it’s important that you set goals that are achievable over a certain period of time. Here are some good questions to answer before you get going:
- What are the things you are saving for?
- Do you currently make monthly savings, or plan to start soon?
- How much money do you need to save for the things you need or want?
- How long will it take you to save for these things?
- What is your tolerance for risk?
As an example, you may be looking to save to buy your first home within the next 10 years. This is a long-term goal that will take a lot of time, planning and patience. It may help you to employ some simple budgeting tactics to achieve this goal, such as the 50/30/20 rule. This rule helps you to split your typical monthly budget by the things you need (50%), want (30%) and save and invest in (20%). The general rule of thumb is to only save and invest the money that isn’t needed to pay bills, or you want available to you at a moment's notice. This ensures you don’t stretch your finances beyond your means.
There are many other things we all want to save towards, so it’s important to be able to recognise our short, medium and long-term financial goals to make sure we set the right expectations as investments require time to grow.
- Short-term goals are anything you plan to do or buy within the next 5 years, such as taking a holiday or buying a new car.
- Medium-term goals are what you need to do within the next 5 to 10 years, such as saving for your wedding, or renovating your home.
- Long-term goals are usually anything that you’re saving longer than 10 years for, such as building a pension for retirement or investing for children or grandchildren.
We see investing as an opportunity to improve your financial situation. However, investing can be complex so we’ve created the NuWealth app with all types of investors in mind. Whether you're just starting out and hoping to build more wealth, or are an experienced investor with long-term financial goals, our app gives you the tools to invest in stocks and ETFs without the stress, and the ability to build financial knowledge with our Learning Hub.
Choosing an investment
A lot of new investors start by asking ‘how should I invest my money?’ What's important is that you consider all investments carefully before making any commitments. There are many types of investments for long-term growth but we will focus on stocks, bonds, and exchange-traded funds (ETFs).
Stocks and shares
When you buy stock in an individual company you are purchasing a share of that business, meaning you become a shareholder. Shares can be bought on a number of stock markets such as the New York Stock Exchange (NYSE), or London Stock Exchange (LSE). It’s up to you how many shares you buy, in whichever companies you choose. Many investors like to buy stock in companies whose values closely align with their personal beliefs, such as ethical investors. As an investor you make money when the value of the stock asset increases and you sell it for more than you originally bought it for. Investing in stocks and shares comes with risk, so remember that the value of a company's stock can decrease or the company itself can go out of business. Some stocks even pay out dividends, which are regular distributions of a company’s earnings. Explore our stock and shares.
Bonds
Bonds are issued by many companies and government institutions as a way of raising funds, which can be traded on global exchanges. When investing in bonds, you are effectively lending money to your chosen bond issuer in return for a fixed rate coupon plus the return of your original money after a stipulated amount of time. It is because of these fixed returns that bonds are considered lower risk for your investment portfolio, however if markets turn or interest rates rise then investments can still go down.
Exchange-traded funds (ETFs)
An ETF is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. You can trade ETFs throughout the day, and the price of the ETF will go up and down. At NuWealth, we offer a selection of ETFs that we believe align to many people’s interests and beliefs such as The Future of Food or Medical Cannabis - we call these Themed Funds. One of the key benefits of investing in Themed Fund is they enable you to diversify your portfolio as you’re not just investing in one company and putting all your eggs in a single basket. See our exchange-traded funds.
Invest with Fractional shares
You can invest your money with fractional shares using the NuWealth Invest app, starting from £10. A fractional share is part of one share in a company and they are useful for investors who don’t have the money to buy a full share. With fractional shares, investing is a lot more accessible for everybody and you can increase your portion later down the line if you wish. Even as a fractional shareholder, you are still eligible to receive dividend payments. Plus, you can also buy and sell Themed Funds (ETFs) using fractional shares. You can invest in ETFs with our Standard GIA and ISA, although fractional shares are only available in General Investment Accounts. Whole shares are also available in Stocks & Shares ISAs and Junior ISAs.
So, how should you invest your money?
Choosing what to invest in can be a little overwhelming, particularly when you are new to investing. It helps to ensure that you’ve done your research and made a good plan at the beginning. Once you start investing, you may need to make some tweaks in your tactics, or you may even find yourself confused. In this case, our Learning Hub is always by your side. Make sure you understand what you are investing in, and don’t spend more than you can afford to lose.
Diversifying your portfolio is an excellent way to minimise risk. You can do this by investing in a mix of stocks as well as ETFs across different industries in the NuWealth Invest app.
Remember, the value of your investments can go down as well as up, so you could get back less than you invested. This article isn’t personal advice or a recommendation to buy. If you are unsure about investing, please seek advice from a financial adviser.
When investing in overseas shares, fluctuations in currency rates may well affect the performance of your investments, both positively or negatively.
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