CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

A beginner's guide to investing

Lesson 5 of 5

Am I ready to start investing?

Once you’ve set your targets, understood the risks involved and planned how to manage them, there are two main questions to consider before you start investing.

How much money do I need?

At one time, the main way to invest was through a stockbroker, who would normally require a substantial amount of money to put into the markets. Today, the digital revolution has really shaken things up. You can now invest into ready-made online portfolios with a small initial deposit. Remember, investing carries the risk that you may lose some of your capital, so only put in money you can afford to potentially part with.

How much does it cost?

Cost is a critical part of the investment decision. Just as inflation can erode the value of cash savings over time, high costs and fees can eat into your investment returns.

If you invest via a wealth manager or active fund manager, you’ll pay a premium in the form of fees and commissions. You need to ensure that the manager is regularly outperforming their benchmark, otherwise those fees are undermining your returns. For instance, if your portfolio generates returns worth 5% of its total value, and your management fee is sitting at 8%, it means you’re losing more money than you’re making.

Many wealth managers will charge a percentage fee on the amount of money you have invested. So when your wealth grows, the management fee you pay grows too. If you do entrust your cash to a traditional wealth or active fund manager, there’s usually an initial charge of anything up to 5% of your deposit.

There are also management and administrative fees to consider which are generally combined into a single annual percentage cost. It can be difficult to establish exactly how much the charges are and what they’re for, and many are often hidden. But what is certain is that for every 1% you pay in costs you need to make an extra 1% return.

Alternatively, you could take advantage of an online wealth management service. These have an online process that helps you build a portfolio that is suitable to your current circumstances. The portfolio is still often designed and managed by a team of investment professionals.

As the process is largely automated and available through online providers, the associated fees tend to be much lower than they are for active funds. Many online wealth management services will also build their portfolios using ETFs, which further reduces the costs to you. Charges are one of the most important elements in reducing investment returns, so make sure you know which costs will apply to you.

Lesson summary

  • Before making an investment, think about how much money you’re willing or able to commit to the markets
  • Consider a target date for your investments – this will help inform how much you should be contributing
  • Service costs have the potential to eat away at your wealth, so it’s important to understand these charges and their impact before investing in any fund


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