Investing Basics: Investing in your 20s and 30s
Interest on savings lags far behind inflation, so if you’re in your 20s and 30s, you might consider creating your own investment portfolio, setting and targeting long-term goals.
Here are four key investing basics
- Invest in companies
Regular investing will help you steadily grow your wealth, whether saving for a house or retirement.
Use tax-efficient wrappers such as isas or sipps, and with time on your side, maximise the opportunity for growth by investing in shares.
When picking companies to invest in, consider what the company does, what its prospects for growth are, how strong its finances are and whether it faces significant competition.
Think of trends that could shape the next decade, and learn the basics of a balance sheet. Finding the next Google is challenging, but would ultimately deliver the best long-term growth for a portfolio.
- Active or passive
Stock picking is hard, so you may prefer to invest through funds.
Where a professional fund manager makes investment decisions it is called active management.
Passive funds don’t have a manager, but track a stock index such as the FTSE 100 or industry sector, hoping to grow in value over time.
Active funds cost more, but the best active funds can outperform an index or sector.
Passive funds are cheaper. They will never beat the index they follow, but neither should they underperform.
A balanced portfolio will hold both types.
- The world is your oyster
The next decision is what sectors you want to invest in and where in the world they are based.
Mature economies such as the UK may not have such big growth prospects as some emerging markets.
Likewise, some industries are in decline while others boom. Technology stocks have delivered big returns in recent years.
Balance is key. Hold funds that cover several different regions or themes.
Some funds allow you to ‘buy the world’ with thousands of underlying investments.
- Little and often
Starting with a lump sum isn’t a requirement. Investing can begin from just £10 a month.
Check our investment calculator to see how much you’ll need to invest to achieve your portfolio’s goals.
Investing regularly is a great way to build up a portfolio over time.
Don’t be alarmed when markets fall. You are investing for the long-term, and buying when investments are relatively cheap, will maximise subsequent growth potential.