So, you have decided to take the plunge and start investing your money in the UK market.
No matter your reasoning or motivation to get started, you will need a solid knowledge of the markets, exercise a lot of patience and discipline, and do thorough research before making a decision so you can safely invest in the UK market.
We took a look at how you can start to safely invest in the UK market, and what guidelines you need to follow. In this article, we will unpack what not to do, what you should look out for and how you can go about making money from this lucrative channel. Let’s dive right in.
Have a firm grasp of the UK market
The first thing that you need to do before jumping into anything is to actually do your research on what you are investing in and how the markets work. The UK investing does differ from investing in the US markets, for example, so it is important to know what you are doing before you get stuck in.
The easiest way to invest in the UK market is through exchange-traded funds or ETFs. These provide investors with diversified exposure in a single security that can be traded just like a stock.
Currently, the MSCI United Kingdom Index Fund (EWU) is the most popular in the UK. Other options include:
- BLDRS Europe 100 ADR Index Fund (ADRU)
- SPDR DJ STOXX 50 ETF (FEU)
- STOXX European Select Dividend Index Fund (FDD)
- BLDRS Developed Markets 100 ADR Index (ADRD)
If you are looking for a more hands-on approach, you can opt for American Depository Receipts (ADRs).
You are able to invest in almost anything, from mainstream targets like shares, bonds, funds, government bonds (gilts) or the UK property market, to more non-traditional things like farmland, vintage cars, wine, start-up businesses or art.
Never invest more than you can lose
You need to keep in mind that investing is a gamble. You are not guaranteed success, and you are not guaranteed to lose everything. Only you can decide whether you can and want to invest, and you need to weigh up your risks before doing any kind of investing.
The rule of thumb is to always invest as much money as you can afford to lose. There is a general misconception that you need to be financially affluent to invest. In fact, if you invest small portions of money, and drip-feed in small sums regularly, you could actually do better than those who simply dump a big lump sum into the market.
Stay away from herd-mentality investing too. It may seem tempting to throw a stack of cash at highly popular stock. The fact is that a lot of these run out of steam and popularity quickly and might backfire on your strategy. Rather, take your time and make informed decisions about your purchase.
Know the risks facing the UK market
Although the UK market is more stable than many emerging markets, it is still plagued by risks that you have to have a firm knowledge of to be successful. The UK is the sixth-largest national economy in the world and houses the world’s largest financial centre, apart from that in New York.
This, together with the fact that it is the third biggest stock exchange in the world makes the UK securities market a very stable and liquid one for investors looking for exposure. The UK also houses some of the largest Blue Chip companies in the world like Rio Tinto, BP and GlaxoSmithKline reducing the amount of risk when it comes to investment.
However, you will need to keep your finger on the pulse when it comes to the risks of investing in the UK. The two biggest risks lie in the fact that the UK is primarily a service economy, which certainly does make up for some stability, but any changes in customer credit or commodity prices can have a knock-on effect.
Secondly, the political landscape of the UK has also increased investment risks. Brexit has been the largest destabilizer in the UK economy for decades, and since the withdrawal in January 2020, has increased risks to the market immensely.
The key to investment success is to spend time doing research prior to simply jumping right in. Keep yourself updated at all times with what is happening in the local as well as global markets and keep abreast of all political and economic news. Whether you choose to invest directly yourself or go through a brokerage, do as much homework as possible to know just what impact it will have should you lose your money on a bad investment.