Investment is often seen as reserved for the wealthy and those with the disposable income to make crazy bets, equipped with knowledge and analytics to make savvy judgements.
However, it’s far more accessible than Wall Street movies would have you think.
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 job for you.
That doesn’t mean investing is always easy, but there are multiple opportunities to earn cash with some research and a clear strategy to guide you through your options.
So here are some ways to invest, when it is and isn’t worthwhile, and how having a set of defined investment objectives is vital.
Benefits Of Investing
There isn’t any universally correct way to approach investing – it’s about establishing how much you have to invest, understanding the risks, and creating an action plan.
Here are some reasons you should consider an investment:
From tiny acorns to mighty oaks
The point of investing is to build wealth.
Reinvesting means compounding gains, so you can play a long game without ever assuming an extremely high-risk position.
You could opt for bonds, stocks or certificates of deposit with gradual returns over time rather than a quick fix you stake everything against.
Create a retirement fund
Pensions are the most common way to invest, although your fund manager will probably make most decisions unless you have a self-invested pension plan.
Still, the Centre for Ageing Better says that millions of us are within 10 or 20 years of retirement and won’t have enough to live on when we give up work.
An investment portfolio can contain diversified assets, so you’re not putting all your eggs in one basket, providing you with a tidy contingency fund for a comfortable retirement – or a luxurious one if you make good choices.
The earlier you start an investment fund, the larger your potential profits, although you need to be conscious of risk and make more conservative choices the closer you get to retirement.
Maximise your profits
Even if you save diligently, your returns aren’t going to make a massive 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 per cent to 1.3 per cent AER with a £5,000 minimum starting balance.
- Aldermore: 1.2 per cent AER with a £1,000 initial deposit.
- Raisin: 1.15 per cent, also with a £1,000 starting threshold.
- Shawbrook Bank: 1.14 per cent, the same £1,000 minimum requirement.
Investing means putting your cash somewhere you’ll get a much higher return rate – most investment vehicles, even the low-risk ones, normally earn better profits than any savings product.
Achieve financial aspirations
Most of us have a bucket list, and it can be a great incentive to invest wisely. Whether paying for private school fees, going on a trip of a lifetime, or buying your dream home, a balanced investment approach can make it happen.
Tax-efficient saving
Investing can be worthwhile from a tax perspective, particularly if you’re close to the Lifetime Allowance for retirement saving and want to avoid investing any more in a pension fund.
Examples might include a SEIS or EIS investment, with income tax relief from 30 per cent up to 50 per cent, although with a cap on maximum investment values.
Investors approaching the additional income tax bracket may find that the risk of investing in one of these less-than-certain ventures pays for itself by reducing their tax bill alone.
The thrill of the chase
The final reason to invest isn’t necessarily financial – and is more about fulfilment and ambition.
Many investors choose to invest in businesses, sectors or areas they are passionate about or where they want to help organisations achieve great things.
It can be exciting to get involved with an early-stage venture and watch it thrive, or you might pick state-of-the-art products that you think are the next big thing.
Selecting your investment goals
Strategy is a fundamental requirement to start investing. The first step is normally to think about which age bracket you fall into, whether that’s:
- A young investor carving out a career path.
- A middle-aged investor supporting a family.
- A retired investor looking to boost their wealth.
Many people start thinking about investment from middle age, usually because that’s when they’re more likely to have the income to spare – but there isn’t any minimum age limit.
Practicalities come into play, and small investments can add up.
Likewise, there isn’t a point where you’re too old to invest, and if you’re concerned about your pension pot, then a low-risk investment may be the solution you need.
Common investment targets
There are three popular investment goals intersecting with your age and financial position:
- Rainy day investment funds – a portfolio to plan a wish list purchase with a five to ten-year term.
- Life event investing – funds to support school fees, children’s costs or perhaps a wedding in ten to 15 years.
- Long-term investing – saving towards retirement with a term of 15 years or longer.
Working through your personal investment goals is essential because your timeframes and anticipated returns will dictate your risk appetite and the products and asset classes that best fit your expectations.
A successful investment strategy isn’t just a list of concepts that you refer back to when you need to make a decision.
It means you keep that risk vs reward ratio balanced, without taking excessive gambles, but with just the right exposure to reap some financial rewards.
Ongoing monitoring and management are key because markets can and do change.
When you get to the intricacies of developing a strategy and building a portfolio, a professional financial adviser can help – but the initial questions about where you are and where you want to be, are the baseline upon which to build your plan.
Why Should I Invest My Money FAQ
What is the difference between saving and investing?
A savings account doesn’t adopt any risk because there isn’t any chance that your money value in your account will drop. The downside is that you also won’t normally have the opportunity to make money because the cash isn’t financing anything. There is a caveat here because inflation risk is real and can erode your savings if it climbs faster than the interest rates you earn.
Investing is different from saving because you are taking a risk, although the level of risk you accept is up to you. You could lose your capital if things don’t go to plan, 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 surplus cash in savings, or expendable income, it’s well worth investing to grow your money. Pick a product or business you know, understand, or can accurately analyse. You should be able to make intelligent decisions about which investments align with your strategy and appetite for risk.
What are the four types of investment?
There are countless products and assets you can invest in, but fund managers normally split them into four categories:
- Cash – high-interest savings accounts, term deposits and regular savings products.
- Fixed-interest – treasury or corporate bonds.
- Property – residential, commercial or mixed-use real estate.
- Shares – investments in stocks and shares, usually through a major stock exchange.
How do I start investing?
If you’d like to give investment a try, you have plenty of options.
Online brokers and marketplaces work as brokerages. However, some charge steep fees or only work with high net worth clients, so it’s worth looking for accessible platforms.
Digital advisers do pretty much the same job but are automated.
You can invest directly through a raise – usually advertised through a crowdfunding platform, or use a stockbroker to pick your stocks.
There are hundreds of stockbroker apps, so you don’t necessarily need a personal adviser, although never downplay the value of professional advice if you’re taking any risks.
How much money do I need to start investing?
It depends on the platform or broker you choose – but there isn’t any lower limit, provided you look in the right places. Mutual funds normally require investments from £500, UK government bonds start at £100 although you can trade them in fractions as small as £0.01, and crowdfunding shares normally start at £10.
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