30 August 2017
If you have not begun your Investing Journey then this article is for you.
Do you have savings goals? Are you in a position to make investments with the objective of getting a higher return than in a bank or building society?
To put it simply, an investment is an asset that is purchased by an investor in the expectation of achieving a positive return over a given timeframe.
There four main asset classes of investment;
There are other types of investments available, including:
A portfolio is a collection of various assets that are owned by the investor. To help lower the risk of your portfolio, the general rule is to hold a variety of assets, “a diversified portfolio” across many different asset classes.
The point of owning an investment portfolio is to achieve a specific rate of return, typically a return that is greater than holding cash.
A portfolio earns returns in various ways. It can be paid to you in a variety of ways depending on where you put your money:
Fees and taxes can reduce investment returns
Money and time needs to be invested into… investing. And service providers charge a fee for share purchases and sales.
In certain circumstances, investors are liable to pay taxes on their gains.
It’s important to ask for fees before you decide to invest as the cost can take a large percentage from your returns.
Unfortunately investing doesn’t come without risks to your capital. There is no such thing as a ‘no-risk’ investment. But the amount of risk depends on the type of investment being made.
Whilst stock market investment returns may exceed interest and inflation in prices over a period of time, you could stand the risk of experiencing negative returns. This could ultimately lead to poor returns or, worst case scenario, losing your money.
As we mentioned earlier, it is a good idea to hold a diversified portfolio to minimise risk. That way, if one happens to underperform – you have others to fall back on. This is known as ‘diversification”.
You should only ever invest amounts that you can afford to lose. It is important to keep sufficient cash for your short term needs away from an investment portfolio.
If you have the money in your savings account, let’s say enough to keep you covered for approximately six months – you should consider investing it if you’d like to see your money increase over the long run.
It also depends on how you feel about the risks and if you truly believe you can afford to lose money should the investment perform badly.