Are you thinking about adding another income stream to your bow? Investing is a popular way to make extra money. But, what is it exactly? On this page, we are taking a look at the basic principles of investing. For instance, it is important to understand investments can go both up and down.
What Are Investments?
Investing is a way of putting money into or buying something that will hopefully one day make you a return. In other words, you will get more money back than you put in.
Before you get involved with investments, it is important to understand the risks as well as the benefits. When you hear others talk about investing, they will talk about different types of investments. The following are the most common types of investment you are likely to make. You can call them asset classes if you like.
Shares – you buy a stake in a large company such a public traded company or smaller local company
Savings – this is when you put your money in a bank, savings scheme such as an ISA or building society
Property – you buy a property to rent out.
Fixed Interest Investments – government bonds issued by governments or companies.
When you have several different investments, it is called an investment portfolio. The best thing to do, is not to hedge your bets on one investment. Instead, spread your investments between different assets. You can also choose to invest in different ways. For instance, you can invest through pooled investments which are also known as unit trusts.
What Are Returns on Investment?
You have probably heard the term return on investment. The returns are your profits on investment. Your returns are paid to you in various ways.
For instance, when you invest in shares, your returns are given to you in form of dividends on shares. When you rent a property, your return is the rent or profit on the sale of the property. Interest is the return you get when you invest your cash in savings accounts. You also make a fixed rate of interest on bonds.
When you have your money invested in instant cash accounts, you can withdraw your money whenever you need it.
With fixed bonds, you have to wait until the end of the agreed period. You can make extra profit on shares by selling them at the right time.
When Is the Best Time to Start Investing?
The answer to that is simple – as soon as you can. Most start with a cash savings account. Once your money starts to grow in your savings account, you should consider other investments.
Always make sure you are realistic about your investments. They should reflect your personal circumstances and your financial goals.
What You Need To Know About Risk
Needless to say, no one likes to gamble with savings. Although there is not such a thing as a risk-free investment, there are investments that are better than others.
Property is considered as one of the less riskier investments. Cash is a good investment, but you want to make sure you invest your money in accounts that are protected by consumer rights. The only downside with cash investments is that the returns are often very low. Also, cash investments do not always keep up with the price of inflation. This is another factor you need to be aware of.
The stock market goes up and down. The best thing is to consider your share investment poprtfolio as a long term project. But, if you think that the share price on the shares you own are about to collapse, it is best to sell them.
Government bonds often mean tying your cash up for up to 5 years, but the return is often good.
Make sure that you invest for you and for your circumstances. Others may recommend investments to to you, but that does not mean they are right for you.
Take your time, evaluate if the investment is right for you and then make a decision. You will find that the best investors in the world never jump in with both feet first. Instead, they look into each investment opportunity to make sure it fits in with the rest of their investment portfolio.