Balvinder Thandi, Specialist Financial Adviser at Wesleyan Financial Services, shares her top tips for dentists starting their investment journey.
If you’re new to investing, it may seem a little daunting – particularly against a backdrop of economic uncertainty. However, investing wisely can help you accomplish life goals or provide a buffer against adversity, such as that caused by spiralling inflation and living costs.
Investing is different to savings. Instead of putting money aside, you are essentially buying assets that may increase in value over time, thus growing your money.
As a starting point, you need to decide what your money will be used for in the long term. You may want to save for a house deposit, your retirement, or making your financial future more secure during these challenging times.
Once you’ve decided what you’re saving for, you can start to think about your investment options. It’s worth remembering that all investments carry a certain amount of risk, and choosing where to invest very much depends on how much of a risk you’re prepared to take.
What is the benefit of investing?
Putting money into an easy-access savings account can feel like a safe bet during economic turbulence. However, savings held in cash tend to lose value because inflation reduces its buying power over time.
Investing can offer the potential for greater returns, therefore providing a greater likelihood of outperforming inflation. Over the long term, investing can smooth out the effects of weekly market ups and downs.
Investing is normally considered to be a medium to long-term home for your money. If you’re unable to commit your money for at least five years, investing might not be the best option for you.
One thing to remember about investing is that the value of your investments can go down as well as up, and you may get back less than you invested. It’s about balancing your risk appetite with the knowledge that high rates of inflation will likely erode the purchasing power of cash savings to a greater extent than investing.
Understanding asset classes
One way to manage the risk of your investments is by investing across many different investment types – also known as asset classes. This is a process known as diversification, and it helps because it makes your investments less sensitive to the risk of a single event.
There are many asset classes to choose from, but here are some of the most common:
Cash as an asset class can include money deposited with banks or held by other financial companies.
- Bonds and gilts
A bond is essentially an IOU from a company or government that wishes to raise money, with a promise to pay it back at a later date. A bond issued by the UK government is called a gilt.
The type of property you can invest in is broadly split between residential and commercial property.
Equities are also known as stocks and shares. Company shares can be purchased to provide part-ownership of a company. You may have heard of a stocks and shares ISA, which would fall into this asset class.
Commodities are goods such as oil, coffee, silver and gold. These commodities are a speculative form of investing, and therefore highly risky.
Seeking advice from specialists
Whether you’re looking to invest for personal or business growth, having the advice of a financial adviser – particularly one who specialises in the dental or medical profession – could get you off to the best start. Specialists can talk to you about diversification and take you through a risk assessment to work out the level of risk you’re comfortable with.