Investing is often seen as reserved for the wealthy and those with the disposable income to make crazy bets, equipped with the knowledge and analysis to make sound judgments.
However, it is much more accessible than the Wall Street movies would suggest.
An investor will look at it like this; you can either work extremely hard to earn money, or grow your nest egg to do the work for you.
That’s not to say investing is always easy, but there are multiple opportunities to make money with some research and a clear strategy to guide you through your options.
So here are some ways to invest, when it’s worth it, and how it’s essential to have a set of defined investment goals.
Benefits of investing
There’s no one universally correct way to approach investing – it’s all about establishing how much you need to invest, understanding the risks, and creating a plan of action.
Here are some reasons why you should consider an investment:
From tiny acorns to mighty oaks
The purpose of investing is to create wealth.
Reinvesting means accumulating gains, so you can play a long game without ever taking on an extremely high risk position.
You can opt for bonds, stocks or certificates of deposit with incremental returns over time rather than a quick fix where you bet everything against.
Create a retirement fund
Pensions are the most common way to invest, although your fund manager will probably make most of the decisions unless you have a self-invested pension plan.
Yet the Center for better aging says millions of us are 10 or 20 years away from retirement and won’t have enough to live on when we leave work.
An investment portfolio can contain diversified assets, so you’re not putting all your eggs in one basket, providing you with a tidy provident fund for a comfortable retirement – or a luxurious one if you make the right choices.
The earlier you start an investment fund, the greater your potential profits, although you should be aware of the risk and make more careful choices as you approach retirement.
Maximize your profits
Even if you save diligently, your returns won’t make a huge difference.
As a quick illustration, Savings Champion compares accounts where you need to give between 95 and 200 days notice to make a withdrawal, and the best rates are:
- United Trust Bank: 1.2% to 1.3% AER with a minimum starting balance of £5,000.
- Aldermore: 1.2% AER with an initial deposit of £1,000.
- Raisin: 1.15%, also with a starting threshold of £1,000.
- Shawbrook Bank: 1.14%, same minimum requirement of £1,000.
Investing means putting your money somewhere where you will get a much higher rate of return – most investment vehicles, even low risk ones, normally generate better profits than any savings product.
Fulfill your financial aspirations
Most of us have a bucket list, and that can be a great incentive to invest wisely. Whether it’s paying private school tuition, taking an unforgettable trip, or buying your dream home, a balanced investment approach can make it happen.
Investing can be tax-efficient, especially if you’re close to the lifetime allowance for retirement savings and want to avoid further investing in a pension fund.
Investors approaching the additional tax bracket may find that the risk of investing in one of these less-than-certain companies pays off by lowering their tax bill on its own.
The thrill of the hunt
The last reason to invest isn’t necessarily financial – it’s more about fulfillment and ambition.
Many investors choose to invest in companies, industries or areas that they are passionate about or in which they want to help organizations achieve great things.
It can be exciting to get involved in a business at an early stage and watch it thrive, or you can choose cutting-edge products that you think are the next big thing.
Selecting your investment objectives
Strategy is a fundamental requirement to start investing. The first step is normally to think about the age range you fall into, whether it’s:
- A young investor carving out a career.
- A middle-aged investor supporting a family.
- A retired investor looking to increase his wealth.
Many people start thinking about investing in middle age, usually because that’s when they’re most likely to have income to spare – but there’s no no minimum age limit.
Practicalities come into play and small investments can add up.
Likewise, there’s not a moment when you’re too old to invest, and if you’re concerned about your retirement kitty, then a low-risk investment may be the solution you need.
Common investment objectives
There are three popular investment goals that intersect with your age and financial situation:
- Rainy Day Investment Fund – a portfolio for planning a wishlist purchase with a term of five to ten years.
- Event investment – funds to cover school fees, children’s expenses or maybe a wedding in 10-15 years.
- Long-term investment – saving for retirement with a duration of 15 years or more.
Defining your personal investment goals is essential, as your time frame and expected returns will dictate your risk appetite and the products and asset classes that best match your expectations.
A successful investment strategy is not just a list of concepts you refer to when making a decision.
This means that you maintain this balanced risk/reward ratio, without taking excessive bets, but with just the right exposure to reap financial rewards.
Ongoing monitoring and management is essential as markets can and do change.
As you get into the intricacies of strategy development and portfolio building, a professional financial advisor can help – but the initial questions of where you are and where you want to be are the foundation on which to build. your plan.
Why should I invest my money FAQ
What is the difference between saving and investing?
A savings account takes no risk because there is no chance that the value of your money in your account will go down. The downside is that you normally won’t have a chance to make money either because money doesn’t fund anything. There’s a caveat here because the risk of inflation is real and can erode your savings if it climbs faster than the interest rates you’re earning.
Investing is different from saving because you take a risk, although the level of risk you accept is up to you. You could lose your capital if things don’t go your way, you could lose your money, but a low risk product is a reasonably safe bet.
Is investing a good idea for everyone?
Yes, if you have excess cash in savings or disposable income, it is worth investing to make your money grow. Pick a product or company that you know, understand, or can accurately analyze. You should be able to make smart investment decisions that match your strategy and risk appetite.
What are the four types of investment?
There are countless products and assets you can invest in, but fund managers generally divide them into four categories:
- Cash – high interest savings accounts, term deposits and regular savings products.
- Fixed interest – treasury or corporate bonds.
- Real Estate – residential, commercial or mixed-use real estate.
- Stocks – investments in stocks and shares, usually through a major stock exchange.
How to start investing?
If you want to try investing, you have plenty of options.
Online brokers and marketplaces work like brokerage houses. However, some charge high fees or only work with wealthy clients, so it’s worth researching accessible platforms.
Digital advisors do much the same job but are automated.
You can invest directly through a raise – usually announced via a crowdfunding platform, or use a stockbroker to select your stocks.
There are hundreds of stockbroker apps out there, so you don’t necessarily need a personal adviser, but never underestimate the value of professional advice if you’re taking risks.
How much money do I need to start investing?
It depends on the platform or broker you choose – but there is no lower limit, as long as you look in the right places. Mutual funds normally require investments from £500, UK government bonds start at £100 although you can redeem them in fractions as small as £0.01, and crowdfunding shares normally start at £10.
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