Why you should consider investing

Investing is a great way to potentially grow your money. Whether you’re looking to pay off your mortgage quicker, boost your retirement fund or provide financial security for your child’s future, investing could help you get there quicker.

But before you part with your cash, you need to be prepared for a long-term commitment. If you can’t lock away your money for at least five years, investing may not be the right choice for you.

It's also important to remember that any investment comes with risk. All investments can go down as well as up, and you may get back less than you invest.

We'd always advise talking to a Wesleyan Financial Services Consultant if you’re unsure about your investment options. Book an appointment for a no-obligation consultation.

Understanding risk

Even if you’re new to investing, you’re probably aware of the ups and downs of the stock market. Where there’s potential to gain, there’s the potential to lose.

While a high-risk investment may result in higher returns, if you’re prone to feeling anxious or would want to withdraw your investment after a loss, it might be best to choose a lower-risk investment option.

There's no one-size-fits-all approach to investing, so don’t feel disheartened if your approach is different to someone else’s. Always adjust your goals and investment levels to something you feel comfortable with.

Help for beginners

Never invest in something you don’t understand

It can be tempting to invest in a company based on a trusted recommendation. But there’s more to know before you invest, like the financial history and health of the company.

Don’t put all your eggs in one basket

It's always wiser to split your investments across companies and other assets to diversify your risk. That way, you can expect a similar level of return while balancing your risk. One way to do this is to invest in funds, which allow you to invest in a range of different investments, often spread across multiple asset classes.

Don’t invest with an entity you don’t trust

Be cautious of unsolicited calls and search results on the internet. Where money is involved, people will go to great lengths to take it from you.

If an investment sounds too good to be true, it probably is

Be wary of ‘guaranteed’ high returns. If you’re unsure whether an investment opportunity is legitimate, seek advice from a trusted financial adviser.

What you or your fund can invest in

You can invest in different 'asset classes', just an investment fund does. Each asset class has different risk and return characteristics.

As a rule, the level of risk matches the potential reward, meaning high-risk asset classes hold the potential for a greater return but also the greatest loss. From top to bottom, the asset classes generally offering the greatest risk and potential reward are:

  • Commodities
  • Stocks and shares
  • Property
  • Bonds and Gilts
  • Cash

Cash

Cash, as an asset class, comes in a variety of forms. It includes money deposited by banks or held by other financial companies, as well as holding short-term government or corporate debt.

What you should know:

  • Cash assets are great for quick and easy access to your money.
  • They can also help keep the value of your savings relatively stable.
  • Your investments will grow more when interest rates are high than when they are low.
  • The buying power of your money will fall if inflation is higher than the return on your cash investments after charges. You can see the potential impact of inflation in our handy inflation calculator.
  • It’s possible to lose money invested in cash assets, especially after fees are included.

Bonds and gilts

A bond is essentially an IOU from a company (a corporate bond) or government (a government bond). They seek to raise money with a promise to pay it back later. A bond issued by the UK government is called a Gilt.

There are two common types of bonds: ‘fixed-interest’ and ‘index-linked’:

  • A fixed-interest bond makes regular payments that reflect a pre-agreed fixed rate of interest.
  • An index-linked bond makes variable interest payments linked to a rate of inflation.

What you should know:

  • When interest rates rise, the value of an existing bond typically falls, and vice versa.
  • Bond prices will fall if an issuer is less likely to be able to repay than previously thought. You’ll see this as a fall in the issuer's credit rating. Bond prices may also rise if the confidence in the issuer strengthens.
  • Longer loan periods generally lead to larger rises and falls in value.

Property

Typically, you can invest in two types of property: ‘residential’ and ‘commercial’.

While it is possible to invest directly in commercial property, it's very expensive and most investments are therefore made through funds. Examples of commercial property include office blocks, retail units, factories and warehouses.

What you should know:

  • An advantage of investing in commercial property is that tenants generally sign long-term lease agreements, which means the level of rental income is predictable and more secure.
  • Commercial properties require a lot of paperwork to manage contracts, tenants, tax and insurance.
  • It can be difficult to sell residential or commercial property quickly at a good market price. And property funds may suspend sales for a period of time.
  • Some property funds invest in the shares of building or property management companies, rather than the buildings themselves. The value of these funds can rise and fall quicker than ‘bricks and mortar’ funds.

Stocks and shares

You can buy company shares to get part-ownership of a company. If the company is successful, and the value of its shares rise, your investments will grow in value. Share prices can rise or fall depending on the economy and the stock markets. You can get some income (known as dividend income) from your company shares. It’s normally paid twice yearly and is simply a share in the company’s profits.

What you should know:

  • Company shares are more suitable for investors who are willing to take a higher level of risk with their money.
  • Dividend income from company shares, like share prices themselves, can rise or fall and is not guaranteed.

Commodities

Commodities are goods such as oil, coffee, gold and silver. Commodity investments can be extremely profitable, but they also involve a high risk of loss. This is because investors aim to make money by predicting future changes in supply and demand.

What you should know:

  • Commodity investments are highly risky, especially if you invest in only a small number of commodity types that form a large portion of your overall savings.
  • If you do want to invest in commodities, consider investing in them as part of a diversified fund. It will help to balance your overall risk

5 steps to becoming a smart investor

You don’t have to spend years studying the stock market to become a smart investor. Here are some tips for helping you stay on top of your investment journey.

Know when to ride out the storm

Predicting how your investments will perform isn’t always easy. Keep a level head through the ebb and flow of investing. Focus on the long-term view instead of any short-term day-to-day movements.

Think ‘time in the market’, not ‘timing the market’

It’s hard to tell when stock markets are at the right level to buy or sell. You may be tempted to withdraw your money when panicked. Staying invested can be better for your long term returns as it gives your money more time to grow and recover from any short-term dips.

It’s easy to fall into the trap of waiting for the right moment to invest, but you may end up missing out on gains, and having the value of your cash eroded by inflation.

Avoid ‘being out of the market’

In the world of investing, cashing in your investments is known as ‘being out of the market’. Remember we said earlier that investing is a long-term commitment? When you’re out of the market, you can potentially miss out on the best days for investment gains and performance.

Consider regular investing

Making a single, large investment can sometimes be risky, as it could fall in value at an unfortunate point in time. Making regular payments into your investments over a long period of time could be a smart way to reduce this potential risk.

Rises and falls in the stock market have less of an impact for regular investors than lump sum investors. And for savers prepared to wait for prices to rise, pound cost averaging presents an opportunity to buy units more cheaply as markets fall.

Pound cost averaging is a technique where you make investments on a regular basis. This reduces your exposure to falling markets from investing a lump sum. Investing at regular intervals means more shares are purchased when prices are low and fewer are purchased when prices are high.

Calculate the value of investing sooner rather than later

The sooner you start investing, the quicker you’re likely reach your investment goals. You can calculate the value of investing sooner yourself, with our cost of delay calculator. Start sooner rather than later to benefit from investment returns and the opportunity to reinvest income.

Why invest with Wesleyan

Are you ready to start your investment journey?

Choose an investor you can trust. As a mutual, we have no shareholders and are owned by our members. We put your best interests at the heart of all we do, ahead of the need to maximise short-term profit.

Wesleyan is a long-term investor. Our core strategy is ‘buy and hold’, so our portfolio turnover is generally lower than the industry average. We also identify out-of-favour stocks and shares with the long-term potential to grow in value.

This means on days when markets are down, we’re more likely to be buying shares rather than selling them.

We offer a range of funds, professionally managed by our in-house, award-winning Fund Managers. As our funds have a range of risk ratings, there's something to suit your capacity for risk.

When you invest with Wesleyan, you're getting service from the Investment Team of the Year at the Insurance Asset Risk Awards 2020.

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