Investing isn’t complicated, so do not hold back and miss out on the potential to make decent returns

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The coronavirus pandemic will have dealt a financial blow to many households in the UK and prompted a reassessment of savings and debt.  

For those whose income has reduced, their savings pots and emergency funds may be running low. Meanwhile pensioners or people approaching retirement may have seen their pension pots adversely affected by stock market volatility earlier in the year.  

But others may have received a boost to their disposable income by saving money on commuting, going out less frequently and potentially seeing a reduction in their childcare costs. According to the Office for National Statistics (ONS), household savings as a proportion of household disposable income surged from 9.6 per cent in the first three months of 2020 to 29.1 per cent in the second quarter, a record high since the figures were first compiled in 1987. 

Savings

The issue is where to put these savings. With interest rates at record low, it’s getting increasingly hard to find savings accounts that pay a decent interest rate to savers or that are at least able to match inflation (currently running at 0.8 per cent).  

For those who are saving for the long-term and don’t think they will need urgent access to the money over the next few years, a consideration could be putting some of the money into the stock market. This is the theme of imoney this week as we look at investing and how to get started.  

Investing always carries risk, but there are ways to minimise this risk. Firstly, it’s important to pick a reputable investment platform. Second, it’s important investments are well diversified. It’s hard for even sophisticated investors to know whether their holdings are truly diversified. However, to take a basic example: putting all your money into a single company carries the risk that the company could go bust and you could lose everything. However, putting money into a fund that invests in dozens or even hundreds of companies vastly reduces the risk of this happening.  

More people are turning to investing (Photo: Getty/Digital Vision)

When investing, it’s also important savers recognise they should be holding for the long-term in order to ride out any volatility and to reduce the chances of getting back less than originally put in. 

This week, we give tips on how to get started and how to choose an investment platform, weighing up a DIY approach versus an option where companies make investment decisions on your behalf.  

Trading apps

We are also looking at the rise of free trading apps that have come to the UK in the past few years. These offer commission-free stock buying and selling, but do they encourage investors to take a more short-term approach to investing by making it cheaper and easier to attempt to time the market? This is the criticism of some financial commentators, who say the apps also don’t give enough guidance to new investors. The alternative view is that these apps are helping bring down the cost of investing, making it easier for people with small savings pots to get started. 

Either way, these apps have been surging in popularity in recent years and look here to stay. For those considering signing up, have a look at our article weighing up the pros and cons

As of next week, new money editor Sarah Davidson will be taking over these columns and the management of imoney, although I will still be writing regularly for the section. I’ve really enjoyed getting to know many readers through the various emails and letters I receive. Thanks for all your feedback and I look forward to staying in touch. 

elizabeth.anderson@inews.co.uk