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A beginner's guide to investing

This beginners guide covers common questions like What could an investment do for me? Or How much risk should I take?

So you’re curious about investing? That’s great. Curiosity has been linked with many potential benefits: psychological, emotional, social, and in this case, financial[@rsa-article-reference]. By learning ways to invest your money now, you could be giving your future self a powerful gift.

Before you invest your money, it's important to invest some time into learning the basics and understanding the risks. With that in mind, we’ve unpicked the detail to bring you a guide that can help you navigate this exciting new world.

What exactly is investing?

Investing is a way of setting aside some of your money for the future by putting it to work for you. When you invest, you’re buying something you believe will increase in value over time. The main thing you need to remember is there are no guarantees. The value of any investment can and will jump around so you could get back less than you invest.

What can you invest in? There are lots of different options, but here’s a brief explanation of two of the most common types of investments: shares and funds.

When you buy shares, you’re buying a tiny stake in a company. If the company performs well, you earn a profit. If the company does badly, your investment may not grow and you could even lose the money you invest. Share prices can also be affected by other factors, such as supply and demand, interest rates and the wider economy.

When you buy funds, you’re buying into a ready-made basket of investments. Some funds are even managed for you by an investment professional. Funds include many different investments rather than just one, which is why many people start by investing in funds.

What could an investment do for me?

There is a diverse range of investment products to choose from. The diversity is what gives your money the potential to generate a better return than cash in the long run.

So one of the first decisions you’ll need make is how you want to receive this potential return – whether via an income, capital growth or a combination of growth.

Investing for income could be a good shorter-term strategy if you’re nearing or in retirement. By choosing shares or funds that pay dividends or bonds that pay interest, you can receive regular payments to boost your existing income or pension.

Investing for growth could be good if you have more time on your side to grow your money. Growth investments aim to increase the value of the actual investment – known as capital gain. The objective of a growth fund would be to grow the original sum invested. For a growth share, it would be to increase the value of the share.

How much risk should I take?

Some people are naturally more cautious than others. The first thing you need to understand is that no investment is risk-free. You’re putting your money into something you believe will go up in value but there are no guarantees.

You’ll be exposed to the uncertainties of the markets, which means the value of your investment can and will jump around so you could get back less than you put in. Your expected returns can also fluctuate. This is all normal and to be expected. With investing, risk and reward go hand in hand.

As a general rule of thumb, higher-risk investments have the potential to give you higher rewards while lower-risk investments tend to equal lower rewards. What’s important is to ask yourself: how do I feel about taking a risk with my money?

Taking a small amount of risk could be a good way to dip your toe in the water. Then you can watch what happens to your investment – and increase your level of risk later if you want to.

And if you’re not sure about how much risk is right for you, you might want to consider getting personalised investment advice.

Our investment advice doesn’t just tell you how much risk you’d be comfortable with. It also tells you whether you should be investing at all right now – and if so, you how much you can afford to invest. Our advice involves a one-off advice fee and financial eligibility criteria apply.

Can I access my money if I need to?

Big things in life can, and do, happen out of the blue. We understand that. With any HSBC investment, you have peace of mind knowing that you can access your money quickly if you need to – usually within 2 to 3 days of selling your investments. However, depending on the market value of your investments at that time, you could get back less than you’d put in.

Investments have a better chance of producing favorable returns the longer they are left to grow. That’s why you should think of investing as long-term commitment and aim to invest for at least 5 years.

Is now a good time for me to invest?

That’s a great question to ask yourself. To help you work out if you can afford to leave your money to grow, it can help to create your own financial action plan.

One thing to think about is whether you have any short-term, interest-bearing debts such as loans and credit cards. If so, it’s usually best to pay off your debts first before you start investing in order to work out how much you can afford to save.

And we always recommend that you've built up a rainy day fund of between 3 and 6 months’ worth of expenses saved up before you make an investment. This gives you a financial cushion in case there’s an emergency so you should be able to leave your investment untouched and give it the time it needs to grow.

Again, if you’re really not sure, investment advice could help you make up your mind about investing. We’ll ask you about your finances and explore your attitude to risk so we can advise you on whether now’s a good time for you to invest. That way you’ll be in a great position to decide.

What’s the best way to get started?

So you’ve carefully assessed your situation and decided investing might be right for you. Now what?

Depending on how confident you’re feeling, you can either choose your own investments, or start your journey by getting some professional advice.

To invest with HSBC, you need to be a current account customer. See which of our 5 investing options suits you best:

Want to make your own investment decisions?

If you’re happy making your own investment decisions, our online trading platform puts you in control. You’ve done your research and know what individual shares you’re interested in, so HSBC Online Trading Platform could be for you.

Our online trading platform lets you buy and sell equities and ETFs, across major stock markets.

Interested in equities?

You can buy and sell equities - or shares - in leading companies around the world, including the US, UK and Hong Kong. Equities give you the potential of high long-term returns.

Interested in ETFs?

Exchange-traded funds (ETFs) - aim to match the performance of specific industries or markets, so you can effectively invest in tens, or hundreds, of companies through a single trade. There are ETFs to cover equity and bond markets, and all industries, worldwide, making it easy to create a globally diversified portfolio.

Interested in bonds?

Due to their relatively low volatility compared to equities, fixed income products such as bonds can add stability to your investment portfolio. They may also provide a regular stream of fixed income returns and potentially grow your capital in the long term. However, as with all investments, it’s possible that you could get back less than you invested.

Interested in mutual funds?

Mutual funds allow you to diversify and choose from a variety of ready-made portfolios from a range of regions. Funds may be actively managed by managers, who research, and buy and sell, stocks.

Bamboozled by the possibilities and want some advice?

If you’d prefer a more human touch, you can request a call back to discuss your options or come to speak to us by visiting your nearest branch.

Your beginner’s guide takeaway

A round up of 5 key things to remember:

  1. Work out how much you can afford to save and invest.

  2. Save up an emergency fund of 3 to 6-months’ worth of living costs before you invest.

  3. Think about starting small and watching your investment to see how it goes.

  4. Be prepared not to touch your investment for at least 5 years.

  5. Consider taking advice to help you decide on what’s right for you.

Footnotes