The Beginner’s Guide To Investment

We’re constantly reminded of the importance of saving – whether it’s for our retirement, that luxury holiday or for those emergency expenditures that just seem to come out of nowhere.

The trouble is, those everyday savings accounts from high street banks, with their low interest rates and annual switchovers, don’t always make our money work for us in the way we’d like.

If you’re considering giving your savings a boost, then you might want to look at creating an investment portfolio. So, with that in mind, let’s take a look at the benefits of investing your money, and whether it’s the right choice for you.

What are investments?

If you’re looking for a profitable return on your money, investments could be the answer. The golden goose, as it were.

There are four primary investment types. These are…

  • Cash is the most common type of investment – these are your bread-and-butter savings with a bank or building society
  • Buying shares in a company gives you a stake when they turn a profit
  • Investing in commercial or residential property is a popular form of investing
  • Bonds sees you loan your money out to companies and the government

Beyond that, you may also consider investing in…

  • Foreign currencies
  • Commodities and collectibles
  • Contracts, in which you’ll ‘bet’ whether a business will gain or lose value

Is investing right for me?

The Beginner’s Guide To Investment

As you’d expect, there are plenty of risks and benefits to investing money. To know whether or not it’s the right choice for you, ask yourself…

  • Am I happy without a guaranteed return on investment?

Investments are by no means a sure-fire deal. Even with what seems to be the safest bet, there’s no guarantee that you’ll earn any profit at all.

  • Can I afford to lose this money?

Certain investment types may yield high returns, but your money is also vunrable. For instance, while placing your money in a bank or building society may seem like a safe bet, some accounts don’t keep pace with interest rates, so your money loses value over time. Other forms, such as stock market investments, could see your entire portfolio wiped out if the share prices dip and you can’t sell them on.

  • How long am I willing to invest for?

Looking to make a quick buck? Then most types of investing won’t be right for you. These take time, so you’ll want to stash that cash for years, rather than weeks. That’s because markets fluctuate rapidly, and it’s only over time that interest rates on your savings gain worthwhile profits.

It’s all about balancing that time with the associated risks and likely benefits – you want your money to work as hard for you as possible. By looking at longer periods of time, say several years, there’s a good chance you’ll make more than with a standard savings account.

What sort of returns can I expect?

Obviously it all depends on what type of investments you’re making, how much you’re saving, and over what period of time. Assuming you’ll actually make a profit, there are a number of ways in which you can get your returns. These include…

  • When investing in shares, you’ll earn dividends
  • When investing in property, you’ll receive rent
  • When investing in bonds or savings accounts, you’ll earn interest

How do I start investing?

The Beginner’s Guide To Investment

Before you do anything else, research, research, and then research some more. Just as you would with any money matters, you want to know you’re choosing the investment that’s truly right for you. Consider not just how much money you have spare to invest, but also your financial goals. This will make coming to a decision much easier.

If you’re a first-time investor, it’s advisable to spread the risk – also know as ‘diversifying’. In other words, invest smaller amounts in lots of different places, companies and even investment types. That way, if you’re losing money – or not making any at all – you still have back-ups that may yield a profit.

It’s also a good idea to seek out impartial advice – after all, if you go to a bank, they’ll undoubtedly recommend their own services over anything else. And, above all else, ensure that it’s your choice to invest; don’t sign up to unsolicited investment opportunities, as they may well be a scam.

This is your money, remember, and you want to protect it as best you can when you’re considering making an investment.

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Master of the budgets. Provider of the tips. Author and owner of Dumbfunded.co.uk.