You CAN make a fortune from the stock market ... even when it seems in turmoil.

WITH interest rates at historic lows for almost seven years, savers have to look harder to find income that in the past was provided by deposit accounts at banks or building societies.

Savings in such cash accounts have largely failed to hold their value in real terms owing to dreadful rates of interest.

People who rely on income from nest eggs have taken a huge hit and are becoming increasingly desperate to explore alternative sources of income to help plug the gap.

To achieve a better rate of return than you would typically get from a savings account, you need to accept more risk.

That said, even cash is not without peril. In choosing the supposedly safer option of cash as a long-term home for your savings, it is almost certain its value will be slowly eroded by inflation over time.

Investing in the stock market is a popular way of generating returns for those who can accept this extra element of risk.

While it’s true that the value of your stock market savings will fluctuate on a daily basis (as the recent heavy falls have proved), introducing risk is less of a problem if you are committed to investing over the longer term.

Historically speaking, stock market gains far outweigh cash even if you do keep investing through sharp peaks and troughs.

Here, we look at how to dip your toe into the stock market:

HOW TO SPREAD OUT THE RISKS

WHETHER you’re cautious or adventurous, there are a number of ways to invest in the stock market. The right choice for you will depend on your attitude to risk and how much money you have to save.

Buying individual shares allows you to benefit from the success of listed firms in a range of markets.

Alternatively, investment funds from asset management companies allow you to invest in lots of different stocks through a single investment vehicle.

Your money is pooled with that of other savers and placed in the hands of a fund manager who will decide where to invest the money.

Diversification is key as spreading money across different assets and markets can protect savings from stock market shocks.

If your money is heavily invested in an area that takes a share price tumble, your losses will be bigger than if you had spread it around.

To make sure your portfolio is spread across asset classes, it could contain a blend of equities, bonds, cash, property and others, such as commodities and gold, to benefit from their different investment cycles.

FUNDS AND TRUSTS TO GROW YOUR NEST EGG

GROWTH funds are popular among long-term savers who do not yet need to take an income from their investments.

Managers in charge of these funds will typically choose to invest in companies that may not be big hitters quite yet, but that they believe will significantly grow over time.

They focus on firms that reinvest dividends in their business rather than paying out profits to shareholders.

Some managers prefer to stick to top- quality blue chip companies — such as BP or Vodafone — that are, in theory, less vulnerable to going bust. others target their investment in smaller and medium-sized companies, believing there is more opportunity for growth. While these types of firms can be more volatile in the short-term than incomegenerating funds, they can provide investors with far greater returns over the long-term.

Getting an income from an investment is often an important requirement for people who are retired or approaching retirement — or even those still working who need to supplement their salary. There is no one- size-fits-all solution to generating income, but there are investments designed to produce regular returns to be taken as income. An income fund typically aims to deliver a steady or growing stream of income by investing in companies that pay dividends.

An income fund manager will scrutinise the level of dividend that a business pays, and how likely it is that it will be paid consistently in the future.

Due to the regular dividend payouts, these funds attract people who need to draw an income.

But they also have long-term appeal, because if the dividends are reinvested, they can boost returns over time. In fact, reinvested dividends provide the lion’s share of total returns in the long run, thanks to compound interest.

You earn interest on interest, or more specifically in investment terms, generate income from previous income.

The effect is so powerful that you can save less for longer and still be better off than saving a lot in a short time. Income funds have proved popular

over the prolonged period of ultra-low interest rates. Crucially, they offer the prospect of inflation-beating returns to protect the buying power of your savings, which can be hard to find.

Income can also be had from bonds, also known as fixed-income investments. These are popular with those who like to know there will be regular payouts for a fixed time.

Strategic bond funds are favoured by financial advisers, as managers have the flexibility to adapt as markets shift.

It’s worth noting that bonds are affected by movements in interest rates — their value may go down if interest rates rise and vice versa.

An investment trust is an alternative type of pooled investment. It is still run by a fund manager, but backed by an independent board that is appointed to act in the best interests of shareholders and is structured in the same way as a limited company.

Investors buy shares in what is known as the closed- end company and it is listed on an index.

There are fewer trusts available compared with the number of funds on the market, but their management charges are often not as high.

Another type of fund mirrors the performance of a selected market index, such as the FTSE 100.

These are known as tracker funds and can be cheaper to run than active funds because there is no research, or fund manager expertise, to pay for — the investment process is thoroughly automated.

While they aim to mimic the returns of a market or index rather than actively pick winners, they can miss out on opportunities in some markets that have a particularly good run.

For those who cannot decide the best balance of assets to invest in, there is the option of a multi-asset fund.

The manager essentially does the work for you — spreading the money across a range of assets and then switching between them when markets or conditions change.

BEWARE OF THE HIDDEN COSTS

WHEN you invest, those involved in helping manage your money charge for their services.

You will pay an annual amount that pays for the fund management. You will also pay your adviser — if you have one — and a fee to the company that does all the administration for your investment selections.

Remember, investing is not just about price. While keeping a lid on costs is important since charges will eat into returns, the emphasis should be on

value for money rather than the price in isolation. Paying more for a fund with excellent returns is better than a cheap fund that offers poor returns.

Multi-asset funds are typically more expensive as there are charges for making asset-allocation decisions.

You might prefer to enlist the help of a professional who can match you with the right funds. You can find an independent adviser in your area on

the websites unbiased. co. uk or vouchedfor.co.uk.

An element of consumer protection is built in to taking professional financial advice. If you buy an investment that loses money and the risks were not explained to you properly, then you could claim compensation through the Financial Ombudsman Service.

This is not a scheme designed to compensate if the investment doesn’t perform — only if it’s mis-sold.

It is crucial to understand what you are buying as well as the risks involved before you sign on the dotted line.

You do have to pay for advice, which adds to the cost of investing. But, of course, it’s money well spent if the adviser can help you choose a product

that is better suited to your needs and may outperform any that you might choose yourself.

However, more and more people are choosing to handle their own investments to cut adviser fees and because they want to take control of their finances.

By using a fund supermarket you can put in place a series of investments without the help, or cost, of an adviser.

Fund supermarkets, also known as platforms or discount fund brokers, allow you to buy, sell and manage shares and funds from companies and many different providers.

As long as you are confident enough to make your own decisions these offer a straightforward way of investing from the comfort of your own home.

You can see what each has to offer by looking on comparefund platforms.com.

Hargreaves Lansdown was recently named as the best overall fund supermarket by the independent research firm Platforum.

Fidelity Personal Investing won the prize for best for guidance, while Charles Stanley Direct and Hargreaves Lansdown share the honours as best for service.

Charles Stanley Direct was best on cost for smaller portfolios, with AJ Bell Youinvest and Interactive Investor best for larger clients.

Interactive Investor, Hargreaves Lansdown and Trustnet Direct were all named for being easy to use.

Being a shareholder is a popular pastime and if you are lucky you could make a substantial gain — but you could equally make large losses.

Any company, no matter how profitable or well established, can be hit by unforeseen events. The price of shares can go up or down — even if just the sentiment about a firm changes.

To buy or sell shares, there are dozens of online brokers with competitive charges. Commission is charged on trades, and this covers the cost of carrying out the deal.

Some, though not all, shares offer income in the form of dividends. The size of the dividend paid by a company can be affected by a number of factors, including the size of the business or the earnings of the company in any year.