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There’s no denying that investing money is more exciting than just leaving it in a bank account, especially if you’re a bit glum about the low interest rates just now.

Of course, everyone should know that investing your money is a risk because the value of stocks, shares and currencies can rise and fall.

But there are other, less obvious dangers that you need to know before you get started.

You don’t have an emergency fund

If you decide to invest some money, it’s important to make sure you also have some emergency cash savings in an easy access account. That way your investments won’t be derailed by an unexpected event and you will have a healthy back up if your investment goes wrong.

Your money in the bank is protected by the Financial Services Compensation Scheme (FSCS). This scheme protects up to £85,000 in cash saved into banks, building societies and credit unions. The £85,000 cap is per person, per bank.

So, if you’re saving more than that it’s important to save it across more than one banking group so you can get the protection for the full amount. Remember that some banking brands are owned by the same bank and so don’t count as separate.

You need to cash out all at once

Maybe you’re investing for retirement or you have a stocks and shares ISA to fund a big event like a wedding or university. That can mean there is a deadline by which you need to cash out, and that can be surprisingly risky.

After all, if the markets suddenly plunge and you have no choice but to cash in your shares, you could lose a substantial amount. For example, a 4% drop in a week on £200,000 of investments could mean you lose £8,000. That’s a sizable risk.

One way to minimise this risk is to set a timetable to cash out over a period of several months, so that you are less affected by any negative trends.

You haven’t spread your risk

It’s pretty well-known that you shouldn’t ‘keep all your eggs in one basket’ and that is definitely true when it comes to investments.

By diversifying your investments, you shield yourself against the danger that one poorly performing market could wipe out your entire stake.

It’s a really good idea to have some capital that isn’t tied up in the performance of the stock market, such as cash savings. If you want to earn a higher amount and don’t need to access the money in a hurry, you can often get a higher rate by locking it away in a fixed-term bond.

That way, if the markets do suddenly head south, your wealth won’t nosedive with it.

Another option is to invest into pooled investments such as unit trusts, which allow small scale investors to still buy into a spread of different companies. As with any investment, it’s essential to research those options fully to find a level of risk you’re comfortable with.

You rush and don’t research

Investing can deliver a better return than cash savings over time. However, the returns are not guaranteed and past performance can’t be taken as proof of what will happen in the future.

Yes, investing can be a great way to make your money work harder. But there are risks and it’s really important you understand them.

FSCS does give you some protection. If you’re given bad advice or you’re mis-sold to and the company goes under, then you can make a claim to the scheme.

However, FSCS will not protect you against poor performance. That’s why it’s so essential you understand the markets you’re investing in, understand the risks involved and understand what you could afford to lose.

So, taking time to read up, research and understand is really essential to minimising your risk.

There are a lot of great guides online but a good place to start is with the Money Advice Service’s guide to investing. And if you want to understand what FSCS protection you will have, there’s a useful guide to investments compensation on its website.

The investment company goes bust

One risk is that an investment company you use hits the rocks and can leave you worrying about what happens to the money you have invested through it.

The answer can vary. Most investor shares are held separately from a broker’s business, meaning they cannot cash out your money and use it, even if they are struggling.

However, quite often investment firms will band their clients’ money together to invest them as one.

That shouldn’t mean you lose your investment if the company goes bust, but it can mean it will take administrators a bit longer to separate out everyone’s shares and return their assets to them.

If the company was Financial Conduct Authority registered then you could potentially be entitled to make a claim via the Financial Services Compensation Scheme (FSCS). For investments, that’s currently capped at £50,000 and you can see what it covers here.

So, before you take out an investment, check that the company is FCA registered, that it has FSCS protection and know your compensation limit.