What is an investment account?
An investment account is much like a regular bank account, and used to buy and sell financial products such as shares, bonds, funds, investment trusts, trackers, and so on. Some accounts, such as individual savings accounts (ISAs) and Self Invested Personal Pensions (SIPPs), have been designed by the government and incentivised using various tax breaks to encourage us to invest for our futures. Others – we call them general investment accounts (GIAs) – are much simpler and for investing outside of your ISA or SIPP. You can find out more about each account type by clicking on the images above to go through to their pages.
To get investing, all you have to do is open an account with a platform or provider, fund it with some money, and select the financial product you want to invest in for your financial goal. But remember, investing comes with risks. It is the only way you are rewarded with a return, which means it’s possible you may lose money. Some assets, such as shares, are riskier than others, such as bonds, which means there are different ways of investing given the level of risk you’re comfortable in taking. Using collective investments such as funds, investment trusts, and ETFs, are a very effective way to manage these risks as it diversifies your investment across a number of individual assets.
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Why should I open an investment account?
We’re on a mission to democratise investing and demonstrate that with just a little bit of money you can get involved and transform your future. By thinking about what financial goals you want to achieve, all you need do is find an investment platform or provider, open an account, and choose some appropriate investments for the level of risk you’re willing to take. Then, just sit back, relax, and let your money do the hard work for you.
Some providers, we call them do-it-yourself (DIY) platforms, offer a wide selection of financial products and supporting services, whereas others, we call them do-it-with-me (DIWM) platforms, have stripped down the offering to just a handful of very diverse funds to make it quick and easy to get investing. If you really aren’t comfortable in making your own investment decisions, then you can always pay for regulated financial advice. Within our do-it-for-me (DIFM) page, we have links to a couple of well-respected third-party platforms that can help you find an adviser near you.
Does opening an investment account take a long time?
Opening an investment account is very easy and usually takes minutes with only a few bits of personal information required such as your national insurance number. Following this, you can then fund your account using a debit card or set-up monthly payments, and start thinking about what you want to invest in!
What can I invest in?
Most financial products are available across all three accounts and through do-it-yourself (DIY) investment providers and do-it-for-me (DIFM) financial advisers, although the product range will be more limited through do-it-with-me (DIWM) platforms. At these platforms, the process usually involves selecting the level of risk you are willing to take before being directed into an appropriate fund, which tend to be very diversified baskets of assets invested in markets around the world.
For the full-fat DIY platforms, the fun is in learning about and investing in a wide range of financial products. On the riskier end, you can invest in individual assets, such as shares and bonds. These tend to be associated with a particular company (or government in the case of government bonds), which means you are exposed to the fate of that single organisation.
To diversify some of these individual risks, you can invest using collective investment funds, which at Steps to Investing we think is a much more sensible approach to building wealth over the long term. These are run by financial institutions and will contain numerous assets – for example the shares of 50 or 60 companies. Each will also tend to be focused on a specific asset class, market, or size of company.
As with all investing, there are still risks in using funds, but remember taking risk is needed to gain a return, and your investments are being managed by institutions with long histories of doing so.
For everything you need to know about investing, please look through our free blogs, pods, and videos, or sign up to our quick 7-day email course.
Can I set-up monthly investing?
Yes, investments can be made in lump sums or monthly amounts. By investing regularly, you avoid some of the risks associated with stock market volatility – swings in prices. Markets naturally rise and fall in lockstep with the fortunes of the economies they’re associated with, but over the long term, 10 years or more, they go up. Investing in a lump sum means you are investing at a specific moment in time, and therefore you run the risk that something negative may impact investor sentiment and the value of the stock market and therefore your investment may fall somewhat significantly. By drip-feeding money into the market in whatever state it is in means you avoid timing the market.
Is it easy to withdraw funds?
It is pretty easy to withdraw funds from investing platforms, but it’s not quite like a bank account. Investing in shares or funds means your money is invested in financial assets, and you will need to sell those assets before you can have it back. Usually, this involves selling some units or shares of your investment, waiting for the money to clear into your account, which usually takes a few days, before requesting a withdrawal, which again will take a few days. Don’t forget, if you are invested through a SIPP, there will be age restrictions on withdrawals, and if it’s an ISA, you may lose part of your yearly allowance. Click through to the accounts pages for more details.