What are investments?

Investments are something you buy or put your money into to get a profitable return.

Most people choose from four main types of investment, known as “asset classes”

  • Shares – you buy a stake in a company
  • Cash – the savings you put in a bank or building society account
  • Property – you invest in a physical building, whether commercial or residential
  • Fixed interest securities (also called bonds) – you loan your money to a company or government

There are other types of investments available too, including:

  • Foreign currency
  • Collectibles, such as art and antiques
  • Luxury items, such as bags, shoes, motorcycle, bike etc

The various assets owned by an investor are called a portfolio.

As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio under performing – more on this later.

Returns

Returns are the profit you earn from your investments.  Depending on where you put your money it could be paid in a number of different ways:

  • Dividends (from shares)
  • Rent (from properties)
  • Interest (from cash deposits and fixed interest securities).
  • The difference between the price you pay and the price you sell for – capital gains or losses.

Investment Cost & Risks

Managing investments takes time and money and service providers will charge a fee. This cost can eat into the returns you’ll receive and it’s something you should ask about before you invest.

None of us likes to gamble with our savings but the truth is there’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types of investment.

When you start investing, it’s usually a good idea to spread your risk by putting your money into a number of different products and asset classes. You need to make your investment plan and do some research to get more detailed information before you start investing your money.

When should you start investing?

If you’ve got plenty of money in your cash savings account – enough to cover you for at least six months – and you want to see your money grow over the long term, then you should consider investing some of it.

The right savings or investments for you’ll depend on how happy you’re taking risks and on your current finances and future goals. There are also 6 things to consider before making investing decisions. It is necessary, though, if you want to turn small, regular savings contributions into a healthy retirement nest egg. Without investing, your savings will actually lose money over time to inflation.

Are you ready to invest?

 

Images © We The People