A Beginner’s Guide to Investing
Investments can be used to make more money from savings or other cash. However, they can also be unpredictable, going down as well as up. So, when choosing a potential investment, it is often best to consult a Financial Adviser who can help you make an informed decision.
What is an investment?
Put simply, they are something you either buy or put money into in the hopes of getting a profitable return. There are four main types of investment, also known as “asset classes” and when you have all these assets together, they are called a portfolio:
- Shares: this allows you to buy a stake in a company
- Cash: these are the savings you put into a bank account
- Property: this is when you invest in a building, either commercial or residential
- Fixed interest securities (also known as bonds): this is when you loan your money to either a company or a government
There are other kinds of investment, too including:
- Foreign currency
- Collectible like art and antiques
- Commodities like oil, rubber or gold
The profits you earn from an investment are called returns. These can be paid in several different ways, including:
- Dividends (from shares)
- Rent (from properties)
- Interest (from cash deposits and fixed interest securities)
- Capital gains or losses
It should also be noted however, that you will often be required to pay fees to service providers for management of your investments. These have the potential to significantly lessen your returns and should be enquired about before you decide to invest.
As we mentioned before, investments can be profitable but there is no such thing as a “risk-free” investment. However, the amount of risk very much varies depending on what you invest in. For instance, money in secure deposits (i.e. savings accounts) risks losing value in real terms, also known as buying power, over time due to interest rates not keeping up with inflation.
However, as The Money Advice Service puts it, “index-linked investments that follow the rate of inflation don’t always follow market interest rates. This means that if inflation falls you could earn less in interest than you expected.” Although stock market investments may beat inflation and interest rates in time, you risk prices being low when you want to sell, which in turn could result in a poor return or even a loss of money.
Financial Advisers may suggest spreading the risk of investing by putting your money into different products and asset classes, which is called diversifying. It means that, if one of your investments isn’t as much of a success as you hoped, you’ll have others that may be doing better.
Should I invest?
The best thing you can do when considering investing is to go and speak to a Financial Adviser. They will have the knowledge and the resources to help you figure out exactly what you want to do.
If you want help with your investments, get in touch with us today at firstname.lastname@example.org or call 01992 500 261 now and see how we can help address your financial future.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.
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