How much money do I need before I start investing?

Would you lose sleep over the amount you plan to invest if it got wiped out in a market crash? 

If your answer’s ‘yes, it would devastate me emotionally and financially’, think again about whether you’re ready to invest.

That’s not a bad rule for novices to bear in mind, even though there are more exact pounds and pence answers to what sum you need to get started.

We take a look at what amount of seed money is ideal, how long you should be prepared to lock it away, and what the general state of your finances should be before you take the first steps into the world of investing.

Gavin Haynes: ‘Long term investors shouldn’t try to second guess market movements, because even seasoned professionals find that is a thankless task.’

This also forces you to buy even during market bloodbaths when stocks are cheap, not just during rallies when they are expensive.

For first-timers, investing a lump sum just before a market correction can be pretty demoralising, but drip feeding means that the impact of falls won’t be as pronounced, explains Haynes.

‘Don’t try to time the market,’ he advises. ‘Don’t wait for the market to fall to invest. Long term investors shouldn’t try to second guess market movements, because even seasoned professionals find that is a thankless task.’

Lowcock adds that drip feeding has behavioural benefits, because you won’t miss money you never had if you set up a direct debit to your investment account on your monthly payday.

He says that even if you suddenly come into a sum of money and want to invest it, it’s better to phase it in as an ‘active drip feed’.

Get a financial plan and invest for your future

If you want to build a financial plan for a wealthier future – and start investing for it – then professional help can be invaluable.

Busy people may want to invest but often find that they do not have the time to build a portfolio themselves.

A good financial adviser can help you work out your goals and how you plan to get there – and then make sure you stick to your financial objectives.

Whether you are investing to help your children, want to retire early, or simply build your lifetime wealth, good advice can ensure you make the most of your money – and avoid pitfalls.

This is Money has teamed up with Timber to offer readers easy access to carefully selected financial advisers who you can trust, with fair and affordable charges.

> Find out if Timber could help you

How much should you have in an emergency fund before investing?

The conventional wisdom is to hold at least three months’ worth of your net salary in cash so you can cope with surprise expenses.

The idea is to have liquid funds available at all times. Keeping a sum like this in reserve is also a good bulwark against worrying about investing losses.

What if you have debts?

Aim to pay off any expensive debts before you start investing, advises Lowcock.

This is because there is a trade-off between interest payments and your returns from investments or savings. You can end up needlessly shelling out more in interest than you are making elsewhere, if you don’t use any money you have available to get shot of the debt first. 

People tend to feel better about their finances when they are debt-free and it also improves cash flow, adds Lowcock.

He says it’s fine to have mortgages and student loans – those taken out in earlier years, before the interest rate shot up – while investing but everything else like car loan, emergency loans, and credit cards should be cleared entirely or paid down to a low level. 

What else should novice investors bear in mind?

Use up your Isa allowance, which is now £20,000 a year and provides a decent nest egg if you can afford to put aside the full amount, says Haynes.

You can split your money between cash and investment Isas, and transfer it between them if you wish, he points out.

When it comes to monitoring investments, he says you should look at things like how your funds are doing compared with their peer groups, but warns against getting obsessed with short term performance.

He adds: ‘Don’t commit money if you are going to be worried, and it’s going to cause you anxiety. The one certainty is there will be periods when prices will fall.’

Lowcock says: ‘Don’t expect growth in the short term, This isn’t gambling. You are not going to double your money overnight. It’s going to take a long time. Once you have started getting invested, don’t expect an overnight wonder. It’s a long term game.’

HOW TO INVEST: A STARTERS’ GUIDE

Free investing guides

If you decide to take the plunge, you will need to research funds and shares and take some practical steps towards getting yourself set up with an investing account.

Some people pay a financial adviser to help them, while others baulk at the cost or simply prefer to go it alone.

Either way, a great starting point for understanding investing is to read This is Money’s 40-page ‘How to be a successful investor’ guide, written by Editor Simon Lambert.

This is Money also offers a range of guides to different aspects of investing, which you might also find useful.

How do you research investment funds? 

How many funds should you hold in a portfolio? 

What if you only want to invest in one fund? 

What do cryptic investment fund names mean? 

What do the abbreviations tacked on the end of fund names mean? 

How do you tell if a share is good value? 

How do you pick the best and cheapest DIY investing service? 

How do you carry out an annual healthcheck on your investments? 

How do you invest your pension pot and live off it in retirement? 

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