Can I afford to take on risk and potentially lose money?
There are no guarantees with investing. Whilst you could make money if your investments do well, you could also get back less than you invested.
Before investing, consider whether you’re prepared to lose some (or even all) of the money you put in. Only invest what you could afford to lose and choose a level of investment risk that you’re comfortable with. You might want to consider starting with a smaller amount, or investing little and often, rather than a large lump sum.
Some investments are riskier than others. As a rule, the investments which aim to make back more money (have a higher return) also carry a greater risk that you could lose money. Check out the risk level of investments on the relevant Key Investor Information Documents before going ahead.
Is investing right for my financial situation?
Even if you want to make an impact with your money, you should consider whether investing is the best option for you. Think about what you could afford to lose, your financial goals, and whether there are other areas of your finances you should prioritise first.
You should probably pay off any short-term debt before investing as the interest rate you pay is likely to be higher than the potential returns of an investment.
You should also make sure you’ve got enough cash set aside for emergencies, so you don’t have to sell your investments. Selling at the wrong time could mean losing money. Many experts suggest having an emergency fund that could cover your outgoings for between three to six months.
It’s also worth considering alternative options for your money like savings accounts or investing more into a pension. Workplace pensions can’t be accessed until age 55 (58 from 2028), but your employer might pay in more if you do. Think about your financial goals and when you’re likely to need the money.
Can I afford to invest for the long term?
Investments should be held for the long term (around five years or more). That’s because the value of investments go up and down over time due to movement in the stock market. Holding on to them for a long time gives them a greater chance to grow and ride out the smaller fluctuations, but there are no guarantees. If you sell your investments at a time when they’re worth less, you could get back less than you put in.
Also think about how much you are comfortable investing. You don’t have to go all in straight away. In many cases it would make sense to start small and build up your investments over time, either by dripping money in whenever you have some spare cash, or setting up a monthly investment plan.
Finally, think about whether wrapping your money up in an investment is suitable for your plans and financial goals. For example, if you’re planning to buy a house or go to university in the next few years, your money might be better off in a savings account.
Am I choosing the right investment for my goals and situation?
Each investment supports different kinds of organisations and creates a different level of impact. For example, some might focus on one or a few smaller, pioneering companies that are delivering new solutions to sustainability challenges. But these carry a higher level of risk. Others might focus on investing in a range of larger, more well-established companies that are transitioning to more sustainable products and services.
Large companies are often lower risk than small and medium sized companies, however they tend to have less potential for growth. If you’re investing in a fund, the Key Investors Information Document (KIID) gives a useful overview of the funds approach and the types of risk it is subject to.
Deciding what kind of organisations you want to support and the impact you want to make is a big consideration. But you should also think about whether the investment matches your financial goals, how much risk you’re willing to take on, and how long you’re planning to invest for.
For example, if you’re investing a little bit of money as a hobby or have a longer timeframe, you might be willing to take on more risk. Whereas, if you’re coming towards retirement or want to invest a bit more, you might feel better with less risky investments. Keep in mind though, that all investing involves risk.
Do I understand the investment?
Knowing where your money is going is more than seeing what great organisations it supports. It’s also about understanding how the investment works and the risks involved.
Before investing, make sure you do your research first. Each investment will have important documents which cover everything that you need to know before investing, including the risk level and type of assets the investment holds. You should also read any important documents linked to the accounts, such as the Impact Investment account or Stocks and Shares ISA, so you know exactly what you’re signing up for.
Am I comfortable making my own investment decisions?
We aim to provide customers with the information they need to make well-informed decisions about their finances. But it’s up to you to apply this information to your own situation and decide whether an investment or account is right for you.
The information we provide isn’t financial advice or a recommendation to invest. If after looking through all the information, you’re still not sure whether a course of action or investment is right for you, you could consider financial advice.
Financial advice is where you pay a regulated and qualified financial adviser to make recommendations based on your situation and goals. You can learn more about financial advice and find advisers in your area at unbiased.co.uk.