New to investing? 5 ways you can invest your money
New to investing? 5 ways you can invest your money
Whatever you want to do with your life in the future, the chances are it won’t happen without money.
The vast majority of us work to earn an income, either by working for someone else or by running our own business. And while it is sensible to keep your money in a savings account, no matter how much you save, you’ll find it won’t grow, other than the tiny amount your bank will pay you in interest. And for all your hard work, you may find that it falls short of what you need to achieve your dreams, be it a new home, beautiful car, a holiday of a lifetime or a relaxed retirement. That’s why so many people choose to invest their assets so they can increase greatly in value over time. When you invest your money, it means you’re buying something you believe you’ll be able to sell for more money in the future. Although this is never guaranteed of course, chances are if you invest wisely you will grow your money and help to achieve the kind of future you want. There are a multitude of different options to invest in, and although it might seem difficult to know where to start, it doesn’t have to be complicated. Here are 5 ways a beginner could look to invest their money.
A very popular investment option is buying shares, which are also known as equities or stocks. When you buy shares you buy a stake in a company, and effectively become a part-owner of that business. If that company is doing well, their value will increase and your shares will too, and shareholders often get dividends (a pay-out from profits) from that company. There are pros and cons to investing in shares:
- High return on investment. If you do your homework on market fluctuations and the state of the economy, and choose the right company you can grow your money substantially.
- Dividend income – in addition to increased share value you can also get additional income in the form of dividends.
- Easy transactions. Shares can be quickly bought and sold.
- Capital losses. Stock prices fall as well as rise and you pick a company that does badly (or goes bust) you could lose all your money.
- No dividends. There is no guarantee of regular payments and like shares, dividends can go down as well as up.
- Transaction fees. You’ll pay a fee each time you buy or sell.
Everyone knows how house prices have boomed so it is not surprising that people want to invest in property. You could buy a house or flat (or even a commercial property) and make money from letting out the property. In the main, the value of housing has risen faster than inflation, and one day you will clear the mortgage.
- Stability. Property tends to be far less volatile than other investments like shares.
- Regular income. If monthly rental payments from tenants cover the mortgage and expenses in effect you are getting someone else to buy the property for you!
- Location. If you pick the right location, demand can be high and the value could increase heavily.
- High entry cost. You need tens of thousands to get into the market so if you don’t already have a lot of money to spare this is impossible to access.
- Property issues. You’ll need to maintain the property and keep it to a high standard and there is always something that needs doing and paying for. Managing tenants can also be stressful.
- Long term investment. Once in, you tend to be in for keeps – should you need to access funds quickly, selling a property can take a long time even in a strong market.
Instead of selecting and buying individual shares, you put your money into a fund together with other investors and a professional fund manager uses the cash to buy a wide range of investments. You buy ‘units’ in the fund, and if you multiply the price of each unit in your fund with the number of units you have, that’s the value of your investment.
- Knowledge. Funds are managed by experienced industry professionals who take the investment decisions. It’s a great way for the beginner to buy investments that could be very complex to manage.
- Less Risk. Funds include many different types of investment across multiple sectors so you’re not putting all your eggs in one basket.
- Investment Size. It is very flexible, you can invest large amounts or very small ones, so great for the budding investor.
- Fees. Funds charge fees, and there are usually entry, exit and ongoing management fees to contend with.
- Risk. Despite the range of assets you will have, your money is still at risk and can fall as well as rise.
This is a form of digital currency that is independent of any government regulations and any central bank. You may have heard people raving about Bitcoin, and crypto is growing rapidly and is starting to be accepted as a form of payment by some of the world’s biggest businesses. More and more people are looking at crypto as an investment option.
- Massive Potential. They are currently more profitable than most other forms of investment. If you had invested £1,000 in Bitcoin in 2013 it would be worth around £400,000 today.
- High Liquidity. Crypto is built on technology so it is very easy to buy and sell quickly.
- Inflation. Cryptocurrencies are protected from inflation as they have finite amounts available, as demand increases value will increase also.
- Volatility. Cryptocurrencies have major fluctuations. In December 2017 you would have needed $20,000 to buy one coin, yet a month later it had lost 65% of its value. By the end of November 2020 it again approached the $20,000 mark.
- Complexity. It is an asset heavily reliant on technology with plenty of accompanying jargon to get your head around. You need to understand how it works before you can invest wisely.
FX Trading, also known as foreign exchange trading or forex trading uk, is the buying or selling of one currency in exchange for another. The aim of the investor is to profit from price movements in the currency markets.
- Simple Access. Anyone can do it and you can do it from your mobile phone. You don’t need to lay down a lot of money either, many Forex brokers require as little as £100 or even lower to invest.
- Flexibility. The market is closed on the weekend but runs 24 hours a day through the week, so great for investors who are working a regular job.
- High Liquidity. There is no market as liquid, with thousands of buyers and sellers looking to make a trade at any time, and the low transaction costs means investors can speculate on relatively small price movements.
- Complexity. Forex can be easily affected by socio-political events such as a change of government, new laws, natural disasters and civil unrest. You need to stay on top of current affairs as well as financial ones!
- Volatility. Forex is all about following trading strategies, but the volatility of the market can quickly make tried and tested strategies redundant.
- Deregulation. Forex is generally deregulated and decentralised which keeps costs low for the investor, but can entail a lack of transparency, so having a good broker is vital. Make sure you deal only with FCA (Financial Conduct Authority) licenced regulated brokers and also have a look at online reviews before you select one.
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