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Choosing the right investments can be daunting. Ready-made products with professionally managed funds offer a simple way to get started, with a choice of risk level that’s right for your needs
Q I save a little each month into a cash ISA, but recently I have come into a small inheritance, so I am wondering what to do with this lump sum. I’m starting to think I should try investing at least part of it in stocks and shares, where I might see greater returns. But everything changes so fast, and I wouldn’t know where to start with choosing which stocks to invest in. What sort of prepackaged investment products are there, where I can let the experts decide? And how do I understand the risk that comes with each option?
A Investing can be a great way to grow your money over the longer term (at least five years) and could help you achieve your financial goals. Before you start, you should consider paying off any short-term debt and building a “rainy day fund” – money you may need to access at short notice.
As guidance, you could put aside at least three times your monthly spend. You could also consider investing more via your workplace pension to make the most of potential employer contributions and the benefits of tax relief.
When deciding whether investing is right for you, bear in mind that different investments carry different levels of risk. Broadly speaking, a higher risk investment is associated with a higher level of return. Lower risk strategies would typically involve cash and government bonds, whereas those with a higher risk appetite could consider investments such as stocks and shares.
At Lloyds Bank we have online tools and educational guides for those new to investing, which can help you understand the types of assets and risks associated with them.
We offer a wide range of investment products at Lloyds Bank. One that might be of interest to you is Ready-Made Investments, where you can invest from just £50 a month* into a portfolio of funds managed by experts. You can pick from three risk-level options – cautious, balanced or progressive.
Once you start investing you should review your investments regularly, as your financial goals and risk appetite may change over time.
How can I give my family a bright future?
Q I have a young family, with two daughters I expect to support through university. I have dabbled with investing over the years but would like to put together a plan that allows me to provide a good financial future for my children. How often should I be contributing to my investments? And who should I turn to for advice? My wider family all have opinions, but I am looking for someone who can set out different levels of risk so I can make the best decisions for my family’s future.
A Planning for your future financial goals to make your money work harder is a great place to start. Understanding how much you want to contribute is down to your circumstances. This is the best starting point, as it should involve a longer-term financial commitment of at least five years. Before investing, consider setting up a “rainy day fund”, which you can access at short notice.
When it comes to investing, there is a lot of information online, some of which may not be from trusted sources. According to a recent Times/Lloyds Bank poll, three in five Brits (61 per cent) don’t have a financial role model at all; those who do most often look to a parent (19 per cent) or a friend (9 per cent).** It can be difficult to know what decisions to make.
At Lloyds Bank we have support available for all types of investors – including potential ones who are curious but aren’t quite sure how to start. Our online guides, videos and articles are accessible and designed to build your knowledge. We can help you compare investments based on the amount you want to contribute and your time frame – and support your understanding of risk and what that means for you.
When managing investment risk, one way that can help limit volatility is to make smaller, more regular investments. This is because your money buys assets at different times and prices. So, over the longer term you buy low (gaining value) more frequently, and buy high (for less value) in smaller amounts – helping smooth out the financial bumps along the way. Even investing a small amount regularly each month can add up over time.
Given that you have children, you may be interested in getting them investing earlier so they can plan for their own futures. Our new investing proposition, Invest Wise, is designed for 18 to 25-year-olds. With this account, they won’t pay account fees and can start from just £20 a month with our free regular investment plan. For children under 18, there are also two types of Junior Individual Savings Account (JISA) – cash and stocks and shares – which are an ideal way to save or invest tax-efficiently.
Riding the ups and downs
Q There is so much uncertainty in the economy, particularly around inflation and interest rates. I keep most of my savings in cash, but in the past few years I’ve found that the interest has not kept pace with rising prices. I’ve heard that something called an “ETF” can be a good thing to invest in, but I’m worried about more fluctuations in the economy, as of course markets can go down as well as up. So what exactly are ETFs? What are the risks associated with them? And finally, I’ve heard that when investing you should be prepared to leave your money in for a longer period – but just how long is “longer”?
A With cash savings, it’s important to consider how inflation affects the value of your pot. If you put money aside in a savings account, which could be instant access or fixed-term, the amount you put in is secure. You may also consider putting it in a cash ISA as an ideal way to save tax-efficiently.
When looking at investments, some people are prepared to take some risk with the aim of getting a higher return than they may get on a savings account. Investments of at least five years may give your money a better chance, as they can benefit from higher levels of growth over the medium to long term, helping to smooth out the financial bumps.
As you’ve mentioned, all investments can go down as well as up, and different investments carry different levels of risk.
If you’ve decided investing is right for you, diversification can be something to consider. Investments spread across different regions or asset types can help to spread out risk.
One way to diversify is through a fund or an exchange traded fund (ETF). A fund is a collective investment that buys a mix of assets which may include shares, bonds, cash and more – whereas an ETF tracks a set of investments, such as an index like the S&P 500 or FTSE or a sector like healthcare, property or finance, to list a few.
At Lloyds Bank we’ve narrowed down hundreds of ETFs into a core set of 16 themes, called the ETF Quicklist, to make choosing an investment easier. With just a handful of ETFs you could create a diversified set of holdings, and if you invest regularly you’ll pay no trading fees. When choosing which ETF or fund to invest in, consider your appetite for risk.
* Capital at risk. Internet Banking customers only. Account fees and charges apply.
** Statistics source: YouGov; sample size 2,090 UK adults; survey dates December 15 to 18, 2023.
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