DIY investing - a beginner's guide

Investments have long been the domain of financial advisers and wealth managers, but according to a recent report from The Platforum, the number of Brits choosing the DIY route is rising.

DIY Investing

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And with new rules allowing financial advisers to charge for advice on the way, many more could join the self-serve investing set. If you have money to invest but are not sure where to start, here's the lowdown on what to consider and what the options are.

Consider this...
Before you even begin to look at investment options, it's important to think about your own personal circumstances and attitude to money.

What is it that you want from your investments? Are you looking to supplement your income or top up your pension? Then an income-based investment will pay out regular sums of money. Others may be hoping for a sizeable payout but are in no hurry to get their hands on it, so a capital growth scheme could be the best option, where the longer the time period, the greater the growth. Some investments even allow for both options, but there may be a higher fee to pay or a greater risk attached to the plan.

Also think about how long you are prepared to lock your money away for. It is often the case that an investment is held for five years or more, and you won't be able to access your money during this time.

Lastly, your attitude to risk must be taken into account. In general, the greater the risk, the greater the potential yield, but if you are after a supplementary income, you may want to minimise your risk.

What are the options?
Any kind of investment comes with a degree of risk, but that risk can vary greatly depending on the type of investment you choose.

Income bonds
The best option for those looking to supplement their income or top up their pension, these bonds provide a regular income that can be paid annually or monthly. However, since these are 'fixed income' bonds, you will not benefit from any rise in interest rates, though the potential yield will increase if interest rates fall.

Investment funds
This is where your money is 'pooled' with other investors' money into a fund, usually run by a fund manager. The benefit is that you are able to invest in more different types of asset, thus spreading the risk, but this type of fund can be very complex with a number of options available, including investment trusts, unit trusts and split capital investment trusts, so it's important to know your stuff or speak to a financial adviser for an explanation and one-off advice.

Structured growth investment
Growth investments usually offer the highest yield, but they also come with the greatest risk. Closely linked to stock market behaviour, investors may enjoy sizeable bonuses when stock market values rise above a certain pre-set level, but if those same values drop below a certain level, you could lose your capital. Growth investments require medium to long-term investment and are most commonly sold through an investment advice team.

Remember, investing carries risk and while the yields can be great, there is always the possibility that you could lose your money. If you are planning to take the DIY investing route, it could pay to seek professional financial advice initially, if only to better understand this complex business.

Are you a DIY investor? What advice would you give to those considering investing themselves? Leave your comments below...