You’ve been working hard for your money, and now you want the money to start working for you. Investing is a great way to make more money, whether you are doing it to enjoy a wealthier retirement or give your kids a great financial start in life.
This guide to investing is designed to assist novice investors on how to get started and build an investment portfolio.
What Is an Investment?
You can define an investment as a store of wealth, which provides the potential for profit or income. Some ways to invest your money include buying stocks and shares as well as purchasing properties to let. Investing in assets has multiple advantages over holding your money in a savings account.
However, while holding the money in a bank account is secure, investing does come with risks, because the value of your money can fall or rise.
Why Should You Invest?
Everyone has different financial goals, but there are two main reasons why you should invest; investing to gain income or investing for growth. Investing for one or both of these reasons requires you to make different decisions to reach your goals.
Investing for income
If you’re investing for income, you are looking for extra revenue on top of the existing money you receive. You can generate this income from investments that make regular payments, including shares that pay dividends. You can also make income from bonds which pay interest.
Retirees are the most common income investors, looking to supplement the pension they receive. However, if you want to become an income investor, you should be aware that income varies and isn’t guaranteed.
Investing for growth
Investing for growth means that you’re looking to increase the value of the investment, a process known as capital gain or capital appreciation. In stocks and shares, growth occurs as a result of a rise in the price of the shares.
For instance, if you joined a pension scheme after you started your first job, then we can consider you are a growth investor because you are likely to hold the investment for a long time, hoping the value of the investment will grow.
Another common way to grow is through trading currencies and crypto currencies, hoping that the value of the currency will increase. Read more on how to trade.
Tips Before You Start Investing
It’s not advisable to start investing before you are in a strong financial position. Here are a few things you should consider:
Assess your financial situation
You should have an emergency cash fund of about six months of regular expenditure before you consider any investment. If you’re in retirement, your savings should be even higher. Also, ensure that you don’t have any short-term debts because they tend to have high-interest rates, so you should work on paying these first.
Set financial goals
You should take your time to consider why you are investing. You can have goals such as saving to buy a new house or saving for your retirement. Understanding your financial goals can help you make reasonable decisions as well as set timeframes for achieving the goals.
Assess the risks
Make sure you are aware of all the risks before you start investing. Some investments will make you money and those that won’t. If you want to be safe, go for low-risk investments, although high-risk investments offer higher rewards. Investing is a long-term plan, so you should invest in assets that will last at least five years.
Most people think that you need a large sum of money to start investing, but you can start with your regular savings. Now that you’re aware of what investments are and a few tips on how to get going, set up your account, and start making more money!