Different from saving, which is when money is put aside until it’s needed, investing requires a commitment to invest our money for a period of time to hopefully yield the monetary gains we expect.

Reasons to invest and why  

When we want our money to work for us and to do more than be safely stashed away, investing is a suitable alternative. Of course, having money put aside for emergencies, like needing to repair your car or buy an appliance, is sensible, but large amounts of money can be put to use and earn you more. 

For instance, if you have £20,000, and you put it into a savings account that pays you a 1% interest rate, after 5 years it would increase to £21,020. However, if you invested the same amount and if there was a 5% growth, after 5 years it would be worth £22,253. Over time this makes a significant difference to the amount of money you have. In other words, the longer you invest, the more money you’re likely to gain.

Things to consider

There are different ways to invest your money, so exploring these options before you make a decision will help you find what’s the best one for you. For instance, a long-term investment may be more appropriate for your retirement fund, but not for a mortgage. 

You also have to think about the possibility of your investment not yielding the result you expect. This will obviously affect your plans, so having a contingency one, just in case, and knowing what to do, may make all the difference when it comes to deciding what type of investment is right for you. 

Tax-free wrappers

A tax-wrapper is a term to describe an account that literally wraps itself around your money to protect it from tax deductions. It’s like a sweet wrapper that protects a sweet. As long as the sweet stay in its wrapper it’ll more than likely be eaten because it’s protected from damage or from becoming inedible. The tax-wrapper acts similarly, protecting stocks and shares ISA and pensions by wrapping them in tax relief. 

Although you can also invest in a cash ISA, it’s the stocks and shares that have the highest interest rates. Additionally, if you choose to sell shares in your ISA, the tax wrapper will protect you from paying any capital gains tax. Pensions are most probably one of the longest-term investments that an individual will have, so having a tax wrapper around investments will work in the same way. 

Investment platforms 

Also known as fund supermarkets, investment platforms are another way to invest your money through buying and selling shares. However, you need to be aware of the different fees you need to pay for using this type of platform, which you can access online.

The fees you can be expected to pay include using the investment platform, when you buy or sell your shares, or other investments like property or bonds, and if you buy a fund. These fees will undoubtedly add up and affect the amount you expect to receive. With this in mind, it’s worth knowing about any fees before you commit to investing in this type of platform.

Having a portfolio of investments is a good way to keep your financial risks lower than having all your money in one. This is because if one type of investment is doing bad, another may not, as investments all react differently to certain market conditions. Seeking independent financial advice is a good starting point, as is doing your own research.