The principle of investment is simple: if you’re willing to risk losing some of your capital, then you have the possibility of increasing your wealth at a far greater rate than any savings account could offer.
By investing, you are no longer holding your money as cash, but instead using it to buy an asset – stocks and shares, perhaps, or some cryptocurrency – and hoping that the value will rise by the time you come to cash out.
Because of the risks involved, many people feel reluctant to start investing. Realistically, though, we can’t all be experts, and that doesn’t need to stop you from taking advantage of money-making opportunities. So long as you only invest with spare income, the risks are minimal. We recommend setting aside an emergency fund that’s stored in an easy access savings account and investing with whatever is left over.
Long-term investments will almost always outperform cash
When assessing the value of an investment, you can compare it against the ‘risk-free benchmark’ – which is to say, how well your cash would have performed if you had simply left it in a savings account.
While the value of your investments is likely to go down as well as up in the short term, over a long period of time they will typically outperform cash, allowing you to grow your capital at a faster rate. Cautious banks are currently offering record-low levels of interest for savers, making it even more important to invest early on.
To help manage the risks associated with investing, you should try to diversify your portfolio. This really just means investing in more than one thing, so that you have a back up if something starts to lose value or the stock market crashes. You can consider property, cryptocurrency and alternative investments such as art or wine as well as stocks and shares.
Investing can help you to fight the effects of inflation
Increasing your savings through investment or interest is important, because if you simply leave it, the real-world value will actually depreciate over time. Inflation means that the cost of living will continue to rise, meaning that the buying power of £1,000 will be a lot less in five or ten years than it is today. Those who are too wary to invest are often hit hardest by this.
Consider alternative investment options
Stocks and shares may be the bread and butter, but they’re far from the only investment opportunity out there. One of the biggest trends for investors right now is cryptocurrency, and you certainly don’t need to be an expert to get started – although you should do your research first. Cryptocurrencies are very volatile, which means that the value will often dip but can also rise by extraordinary amounts, leading to huge investment gains.
One way to get started is with a trading app such as Bitcoin Revolution. These will give you information about the market, helping investors to understand which currencies to invest in and when. Open an account here to get started.