Am I ready to invest?

Find out if you’ve got your money ducks in a row

Before deciding to invest, there are some things to think about on your current finances.

Answer our four quick questions to find out if you’ve got your money ducks in a row, or if you might need a bit more time to get your finances into shape.

QUESTION 1: Do you have any debts apart from a mortgage?

a)    None at all
b)    Some, but they’re manageable each month 
c)    Sizeable debts that I’m struggling to pay off 

Putting your mortgage to one side, it’s normally a good idea to pay off any debt before investing, especially if you’re paying a high interest rate. But, if your debt is manageable, you could still consider investing by starting with whatever you can afford each month.

If you answered c) it may be best to focus on paying off your debts for now.

QUESTION 2: Have you got any money saved up for emergencies?

a)    None at all
b)    A little bit
c)    I’m well covered

It’s usually a good plan to have some money put aside in savings, which you know is definitely there should you need it and can be quickly accessed. We usually suggest at least four months of your normal outgoings as a sensible amount to aim for. 

If you’ve already got some money put aside but are planning to save more you could consider starting to invest some of your money as well.  

But if you’re the main breadwinner or have a mortgage to pay, you may want to think first about how you or your family would cope financially if you were no longer able to earn. If you don’t already have it, taking out some protection insurance is another option you could consider for some of your money.

QUESTION 3: Do you have any money potentially available for investing now?

a)    I’ve got a lump sum I could invest
b)    I’ve got some spare money each month I could invest
c)    I’ve got a mix of the two

Investing a lump sum can work well over a longer period (five years or more is usually recommended although you can choose to sell investments at any time). You can expect ups and downs along the way but holding investments for longer means more potential for their value to go up by the time you come to sell them.

Regularly investing a smaller amount is another way to get started and can be good for building your confidence. By investing gradually in smaller chunks, you spread your risk of being affected if investment values go down. In fact you can even benefit from this as your monthly investment amount will buy more when prices are low. 

Could investing regular amounts work for you?

Whichever option you choose, or if you choose a combination of both, you should be prepared for the risk that you might get back less than your original investment. 

If you’re not prepared to take that risk, or can’t realistically afford to given your personal financial situation, you may not be ready to invest.

QUESTION 4: Do you want to access your money within the next five years?

a)    Yes, I’ll definitely want access within the next five years.
b)    No, I want to invest for longer than five years
c)    I'm not sure yet

It’s good to have a goal in mind for your investment, whether it’s to leave it invested for a specific period of time for a rainy day, or saving for an upcoming event like the trip of a lifetime or a child or grandchild getting married or going to university.

Work out what you’re investing towards 

Your timeframe could be a deal breaker though. The short-term ups and downs of  investments mean it might not be such a good idea to invest if you’re looking to access your money within five years. 

It’s not that you won’t be able to sell your investments in a shorter timeframe. Many types of investments can be sold quickly with very little effort on your part and you’ll usually get the proceeds within five days. It’s that you’re less likely to make a profit and be more at risk of making a loss if you do.

And that’s the end of the questions.

Your answers might have given you confidence that you’re ready to invest, or help you consider what you might be better doing first. Either way, it’s good to think about making a start with investing sooner rather than later.

The earlier you do, the greater the potential you have of reaching your financial goals.