What is investing?

What is investing?

The information in this guide was last updated on 01/07/2014

An investment is something you buy with the hope that it will gain value in the years to come.

There are many different kinds of investments with each having its own unique set of potential rewards and risks; however, investing isn’t for everyone. But if you've paid off your debts (excluding your mortgage), have savings for emergencies in your bank or building society, are prepared to accept a degree of risk of capital loss in return for potentially greater rewards (compared to a traditional savings account) and are prepared to invest for at least 6 years , then investing could help you put your money to work. Investing could help you reach some of your more ambitious financial goals, whether it’s saving for a house or a special purchase or event.

Compared to keeping cash in the bank, investing comes with additional risks, as well as potentially greater rewards. There’s always the chance your investments will lose value and in the worst case you could lose all your money. You need to accept this risk as part of your investment strategy.

Investing can help you

  • Build a nest egg for the future - When looking at terms of 6-10 years or more, investing could grow your money faster than the interest you’d earn from savings in the bank.
  • Beat inflation - With inflation, money can lose some of its buying power over the long term. Interest rates on cash savings often don’t keep pace with inflation, so to potentially reduce the long term impact of inflation you may wish to consider investing.
  • Turn a lump sum into a regular income - Some kinds of investments are designed to turn a lump sum investment into steady payments.
  • Take advantage of tax benefits - Investing in a Stocks & Shares ISA can reduce the tax payable on investments.

The difference between saving and investing

Whether you choose to put money in a savings account or invest depends on your attitude to risk. With savings, there is very low risk to your money - you’re simply putting money aside to use in the future – but the amount you can earn in interest is limited.

The advantage to investing over saving is that there's the potential for capital growth (profit made on your investment) which may bring you more of a return for your money than saving alone over the long term. However there is a risk that you could lose some or all of your money.

Before you start investing

Compared to keeping cash in the bank, investing comes with additional risks, as well as potentially greater rewards. There’s always the chance your investments will lose value and in the worst case you could lose all your money. You need to accept this risk as part of your investment strategy.

Is investing right for me?

Investment types

Understanding risk