Your stars have lined up and you have finally hit that big win in playing online lottery. But where do you go from here? Chances are there are a million thoughts going through your mind. It’s hard enough to get your head around winning a big lump sum; but considering all the things you could do with the money is quite something different.

Investor analyzing stock market investments with financial dashboard holding a smartphone and with a computer screen

While there are many ways to splurge the lottery pounds in your pocket, even lottery winners invest their winnings. But unlike the lottery where your outcome depends on luck, investments take a lot of knowledge, thought and care. If you are new at this, here are five tips for investing your money. 

1. Understand your risk tolerance

Playing online lottery does not involve a lot of risk. For as little as one pound you have a chance of getting thousands, or even millions, back. However, investing your money is quite a different thing. This is where risk tolerance enters the picture. Risk tolerance is a genetically-based psychological trait. As an example, some people are weary of putting down £100 to get £200 back, while others are comfortable in risking £1,000 for a chance to gain £1,500. By understanding your risk tolerance, you can avoid investments that are likely to make you anxious, let your emotions run wild and lead to bad decisions. And when you feel comfortable, you’ll be able to keep a cool head and follow an analytical process, which will lead to better investment decisions. 

2. Start with what you know

Business meetings of real estate brokers and company presidents to select a model to build a housing estate

The ability to make confident investment decisions is based, among other things, on knowledge. An easy way to enter the stock market is by buying things that you’re already familiar with. For example, if you see your mobile phone as an extension of yourself and spend a lot of time online, you may consider buying Vodafone shares. Or, if you love coffee, why not invest in Starbucks? Investing in your personal area of expertise is a great way of testing the waters and getting your feet wet without feeling too intimidated. However, this strategy is best for smaller investments and should ideally be handled separately from more serious investing. 

3. Save money by investing through a DIY platform

Buying your units directly from a fund manager may seem like the quickest, easiest way of entering the mysterious world of investing. But be warned. Investing your money through a fund manager can be very expensive. Why see your investment cash eaten away by admin fees, trading charges, hefty commissions and exit penalties when you can put that money into an investment to grow?

DIY investment platforms, provided by companies like Hargreaves Lansdown, Interactive Investor and Bestinvest, offer a cheap, convenient way to invest. These self-managed platforms allow you to choose funds to invest in, hold funds, monitor your funds’ performance and sell them – all in one place. Each platform offers different levels of fees and charges. For example, if you want to start off with a small investment, you may pick a platform that charges the lowest percentage-based fee; while investing a hefty sum would probably be managed more efficiently with a flat fee.  

4. Treat stock investments like business transactions

Business team investment trading on a stock exchange

Imagine you and a business partner are considering buying the café around the corner from your house. You’d automatically think about the competition, the suppliers, distribution, prices, the location, demand etc. Warren Buffet argues that beginner investors should have a similar approach when buying stocks. After all, buying stocks of a company is not just buying a symbol on a digital screen; it’s buying a stake in a business, which means owning a small part of the company and therefore being directly affected by its gains and losses. Before investing, it’s best to do research into the company’s financial history, how they match up against their competitors, how they make their money, etc. 

5. Trust your instincts

Another gem of wisdom from Warren Buffett… according to him, the hardest thing for new investors is to trust their own decisions. Buffet argues that beginners tend to doubt themselves, especially when others have different opinions and investment strategies. Yes, accumulating knowledge is important and investment decisions should always be based on business insights. But in order to invest your money successfully, you need an x-factor: the ability to overcome your fear, believe in yourself and not pay attention to what others are telling you. Anyway, if you had to listen to everyone’s advice, you’ll never have the clarity and courage to take action. By basing your decisions on what you’ve learnt and by trusting your instincts, you’ll be able to make investment decisions with confidence, on your own, which could be very rewarding.

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