You don't need to be an expert or wealthy to start investing. Many people invest to make their money work harder for them and get set up for the future.
But there are no guarantees.
If you're thinking about investing, it's important to learn the basics and work out whether it's right for you. This guide covers the main types of investments, what you can expect, and some rules to remember.
Investing means setting money aside for the future and putting it to work for you. When you invest, you're buying into something you believe will increase in value over time.
Investing has the potential to generate a better return in the long run compared to a savings account. But the value of any investment can and will jump around, and you could get back less than you put in.
What can you invest in? Well, from the more common types of investments – such as shares, property or gold, to the more specialist – such as art, wine or designer handbags – the answer is almost anything.
When you invest in funds, you're buying into a mix of assets, which may include shares, property, government bonds, and cash. Funds save you from trying to pick the individual investments you think will perform best.
It's essentially a ready-made basket of investments.
This approach is known as diversification, and it can be an effective way to manage risk. If some of the investments in the fund perform badly over a certain period, others may perform well, which can make the overall returns of the fund smoother over time.
There are 2 main types of fund:
Funds vary in risk from 'cautious' funds at the lower-risk end of the scale to 'adventurous' at the higher-risk end. The longer you plan to invest, the more adventurous a fund you could consider, as you'll have more time to recover from any periods of poor performance. The sooner you're likely to cash in your investment, the less time you have to recover from any dips, so you may want to choose more conservative funds.
Shares are units of ownership in a company. When you buy shares, you're effectively buying a small stake in a company.
Companies sell shares to raise money, which they use to expand their business. Investors, known as shareholders, are then free to buy and sell some or all those shares on the stock market at any time.
If the company performs well - or is expected to perform well - demand for its shares will generally increase, pushing its share price up. If the company does - or is expected to do - badly, its share price will generally drop. Interest rates and the wider economy can also affect share prices.
As a shareholder, the value of your investment rises and falls with the share price. So, while the money you invest has the potential to grow, it could also fall in value.
There are 2 main ways you might make money from an investment: growth and income. In the case of shares, this would mean rising share prices (growth), or dividends (income) – a portion of profits that companies pay out to shareholders.
Funds are typically badged as either 'accumulation' or 'income':There are 2 main ways you might make money from an investment: growth and income. In the case of shares, this would mean rising share prices (growth), or dividends (income) – a portion of profits that companies pay out to shareholders.
Funds are typically badged as either 'accumulation' or 'income':
Investing for growth could be good if you're able to invest over a longer period, as accumulation funds may provide you with greater returns in the long term.
Investing for income could be a good shorter-term strategy, particularly if you're nearing or in retirement. By choosing funds that pay dividends, you could receive regular payments to boost your existing income or pension.
If you're considering shares, you also need to decide whether you're aiming for growth, income, or both. Keep in mind, that investing in shares can take a lot of research and you'd need to hold a balance of different stocks to mitigate the risk of losing money with one particular company.
Explore: Financial planning
To figure this out, start by asking yourself a few questions.
If you've got unsecured interest-bearing debts, such as credit cards and loans, you should pay these off and build up some savings before you start investing.
Ideally, you'd have an emergency fund to cover 6 months' worth of your living costs . This way, you'd have money available to cover unexpected costs and wouldn't need to dip into your investments.
If you're trying to build up enough money to cover a short-term goal, like the cost of a new car, a holiday, or a wedding, then investing may not be the right option.
But if you're putting money away for something at least 5 years away – such as a child's education or more flexibility later in life – then investing may be worth considering.
The sooner you start, and the longer you can leave your money invested, the more time it has to potentially grow and recover from any dips along the way.
Explore: Saving and investing for expats
No investment is risk-free. You're putting your money into something you believe will go up in value but there are no guarantees.
Risk and reward go hand in hand.
You don't need loads of money to invest – starting small could be a good way to dip your toe in the water. Then you can watch what happens to your investment, and invest more later if you want to.
Ready to take the next step? Read how to start investing
HSBC Bank plc, Jersey Branch has prepared this article based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information.
The HSBC Bank plc, Jersey Branch and the HSBC Group are not responsible for any loss, damage, liabilities or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article. The contents of this article are subject to change without notice. HSBC Bank plc, Jersey Branch and the HSBC Group give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this article.
This article is not investment advice or a recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. This article should not be used as the basis for any decision on taxation, estate, trusts or legacy planning. You should not use or rely on this article in making any investment decision. HSBC Bank plc, Jersey Branch and the HSBC Group are not responsible for such use or reliance by you.
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