New to investing? Low returns on cash savings may prompt some people to consider investing for the first time. Here are 7 key questions to consider before taking the plunge.

Low interest rates on cash savings may be prompting some people to consider investments, in the hope of generating stronger long-term growth. But if you’re new to investing, there are some key questions you may want to consider. These could help you to find a suitable product, and work out whether investing is right for you.

To highlight some key questions newbie investors may want to ask themselves, we talked to Jason Hurwood, Nationwide Building Society’s director of investments, and John Dunne, financial planning manager. So if you’re considering investing for the first time, here’s what to ask yourself first…

1. WHY INVEST?

Everyone’s motivations and goals are different. Dunne says there is no “one-size fits all approach”. Some people may want to help grandchildren, go on a cruise, have a more comfortable retirement, or simply make their money work harder.

2. WHAT IS YOUR CAPACITY TO INVEST?

Investments are intended for the long-term, so consider anything potentially affecting your plans.

Having some cash savings to dip into in emergencies, and making debt repayments, are also considerations before investing.

Dunne explains: “Thinking about what (clients) are going to use that money for in the future then brings us into the capacity part of the conversation. Have we taken care of our emergency fund – our short-term pot of money? Have we taken care of any expenditure that we might have coming up?

3. ARE YOU WILLING TO TAKE RISKS?

Investments can go down as well as up, and so investors should consider how they feel about riding out economic shocks, such as the market movements during COVID. Dunne suggests considering:

“Can I take a risk? How much money am I willing to take a risk with? And how much of a risk am I willing to take with that money?” Shrewd investors may put money in when markets have dipped and are set to rebound, but trying to time the market is “incredibly difficult”, he adds.

4. WHAT ARE THE CHARGES?

People could pay for independent financial advice, or they could invest without advice. Dunne says: “You can relate it to any other service that you pay for. You take your car to a mechanic to get it serviced once a year, much like you’re going to pay an adviser to service your portfolio. Make sure you are aware of all the charges that are involved.”

Financial advisers can help people understand jargon around investments and the tax position around different products. Hurwood adds: “There’s a balance in terms of the value that people can see from a service versus their own ability to invest.” He cautions that if you’re investing yourself, it’s vital to “do your research”, and if people are getting financial advice, he says they should get a fee breakdown.

“Alarm bells should ring if you’re contacted out of the blue, promised unrealistically high returns or pressured.”

5. ARE THE INVESTMENTS PART OF A BIGGER LIFE GOAL?

Hurwood says: “Where advice really comes into its own, is when someone is doing something that is part of a broader strategy in their life.

For example: ‘I’m coming up towards retirement and I’ve got some money here and property there and I’ve got some pensions coming up to fruition, and I’m not quite sure what to do’. The advice then is not just about the investment itself, but all these things together.”

6. CAN YOU ‘DRIP’ MONEY INTO YOUR INVESTMENTS?

You might not have a big lump sum to invest, but you could still drip small amounts in from your income. Hurwood adds: “If you are investing sums regularly, it’s a really powerful way of growing your wealth over time.”

7. ARE YOU SURE ABOUT WHO YOU’RE DEALING WITH?

Investment scams are rife. Credentials can be checked on the Central Bank website (centralbank.ie). Alarm bells should ring if you’re contacted out of the blue, promised unrealistically high returns or pressured. Some criminals clone legitimate providers’ websites.

For consumer protection advice visit ccpc.ie