Investing can be an effective way of growing your money, but it’s not without risk. Before you take the plunge, tick off this checklist to make sure you’re ready to invest.
1. Have you paid off your high-interest debts?
If you have any debts with particularly high interest (such as a credit card or payday loan), you should pay these off before you start investing. This is because any returns you make on your investments are unlikely to consistently exceed the interest fees on your debt, so you may still find yourself losing money overall.
It’s also a good idea to budget, making sure you can live within your means, and won’t be adding to any debts going forward.
2. Have you got an emergency fund to cover 3 months worth of expenses?
It’s vital to have an emergency fund in easy-access savings while you’re investing. If your car breaks down or your boiler breaks, for example, you won’t be able to rely on immediate access to the money tied up in your investments.
You should also consider any insurance and protection products you might need to cover unexpected events like illness, injury or loss of income. This would provide you with financial support to get through difficult times without having to force sell your investments before you want to, or use income that could be used to provide necessary cover.
3. Does your employer already contribute the max amount into your pension? Or if you paid more, would they match it?
Many people don’t realise that their pension is actually an investment. It’s a tax-efficient way of growing your money as you won’t pay tax on the returns you make. You can invest up to £40,000 into your pension each year (for the tax year 2020/21) so it’s sensible to maximise your tax-free allowance before investing elsewhere. Remember that it’s not just tax-efficient returns you’ll benefit from, but you’ll also get tax relief on your up-front contributions.
Your pension should be considered a long-term investment as you can’t access it until you’re 55 years old (this goes up to 57 years old in 2028).
Tax treatment depends on your individual circumstances and is subject to change in the future.
4. Have you considered what your financial goals are?
Investing with purpose is one of the golden rules of investing. Whether you’re hoping to buy a home in 10 years time or just have more cash freed up for retirement, it’s a good idea to invest with your goals in mind. This way, you’ll have something to track your progress against when you review your investments.
5. Are your goals more than 3 years in the future?
When you invest, you should go into it with the mindset of playing the long game. That’s because the stock market tends to outperform cash in the long term. So when you invest, be prepared to leave it for a minimum of 3 years to give your money the best chance of earning decent returns.
6. Have you taken our risk quiz?
If you choose to invest on Claro, we’ll ask you a few suitability questions to assess your appetite for risk. This helps us to know how adventurous or cautious you want to be with your investments so that we only show you products that are appropriate for you.
We’ve also created a risk quiz if you want to discover your risk profile right now.
If you decide to invest, remember that your capital is at risk.