Investing is often thought of as ‘too risky’, ‘too complicated’ or ‘for the rich’. In this guide we aim to bust some myths and show you how to grow your wealth through investing.
Here we’ll cover the types of investment you can make, the benefits of investing and how to get started.
What is Investing?
Investing is the process of buying assets with the intent of making a profit. This could be buying into companies in the form of stocks and shares, buying commodities in the hope they’ll gain value or even buying property. Investing is a way to grow your wealth.
Types of Investment
Property
Many people will already have invested in property in the form of their own home. Obvious other examples include buy to let properties to generate rental income whilst he house appreciates in value.
Commodities
These are physical assets such as precious metals, oil, wheat or even coffee. In some cases you can own and trade a physical commodity such as gold and silver. In most cases however you’ll gain exposure through commodity trading in futures, options or a holding company.
Cryptocurrency
Investing in digital currencies such as Bitcoin or Ethereum.
Bonds
A form of loan by a government or company. You can buy a form of coupon that on expiry you can cash in for interest and the original value. You are essentially loaning your money to the issuer of the bond. These are faily low risk investments as the UK or US government have never defaulted on a bond.
Bonds will typically fluctuate with interest rates and demand will rise and fall accordingly.
Equities
Typically referred to as shares, you can buy a stake in a publicly traded company.
You can buy shares of individual companies or groups of companies via funds – actively or passively managed. Equities are where we’ll be focussing the rest of this guide.
Why Invest
It’s important to know that investing carries risk. Unlike a regular savings account, you can lose money when you invest. It is not however gambling as some may perceive it. Over the last 20 years the FTSE AlI-World Index (a measure of the global stock market) has shown compound annual growth rate of 9.98%. We can’t guarantee this will continue in the future, but it’s a useful statistic.
Growth of £100 over time in the MSCI World Index
Investing can be a great way to grow your wealth. We’ve talked previously about why you want to beat inflation in our blog on ISA Rules for 2024. In essence, if you are not receiving an above inflation return on your savings you are losing purchasing power.
Investing can help you beat inflation, and reach financial goals such as building a retirement fund. You can not only maintain your purchasing power, but grow it.
Investing Myths
There has long been some mystery around investing, however there are a few myths we can bust fairly quickly.
You need a lot of money to start investing
Not true! You can invest with many brokers including Trading 212 from as little as £1.
Investing is risky
It’s true, investing carries risk, however there is a lot of research suggesting that if you invest in broad global indexes for the long term you’ll achieve good returns. Clearly no one can predict the future, however! Investing can be volatile, so if you are saving for short term goals, such as buying a house in the next year then perhaps investing isn’t the right choice.
It’s complicated / You need to be a financial expert
Anything can be complicated if you dig into the details! You can make investing as simple or as complicated as you like. If you want to invest in a single global index fund then it’s a fairly straightforward process. First open an account just like you would for a savings account with a bank. Then deposit your funds. Select a fund – this is where you’ll need to do a bit of work as there are lots of options. Hit buy.
How to Grow Your Wealth
How do you get starting investing?
- Make sure investing is right for you
- Ensure you are investing for the long term, you won’t need the money in an emergency and you are prepared to accept some risk
- Create a budget
- Decide how much you want to invest, ensuring you have funs set aside elsewhere in case of an emergency
- Select and open the right investment account
- This could be an ISA or a General Investment Account (GIA). Be aware of the tax implication and pick a broker that works for you. There are many very good value investing platforms that offer no commission and no ongoing platform fees
- Select the appropriate investment(s)
- Research and select the best investment for you. For many this might be a single, global ETF providing a well diversified portfolio in a single product and keeping the process very simple.
- Set up regular investments
- Set up a regular, automatic investment into your portfolio to keep things simple and ensure you stay on track with your investing goals
- Sit back and let the investments grow
Investing Tips
Diversify
Investing is about risk management. You can pick individual stocks, but for most investors a global index fund will be the safer option. Ensure your investments aren’t all in the same region or sector and therefore you are less likely for a single investment to hurt you too much.
Don’t meddle
It’s so easy to tinker with your investments, it can be exciting. Most of us however do not have the time to keep on top of every factor that may impact the market. Set up regular investing into your chosen portfolio and leave it otherwise you may miss out on the best returns.
Set a budget
Decide on a budget and stick to it. It’s very easy to let emotions rule when you see an investment rocketing up or crashing down. The important thing is to take emotion out of the equation and stick to your plan and budget.
Should You Start Investing?
Whether you invest or not, and what you invest in will be a very personal decision. You need to decide what is right for you.
Many people are already investing, by way of their pension. Often an employee pension is invested in stocks and shares, bonds, or a combination of the two.
Personally, I have chosen to invest. I have a house with a mortgage however I want to start saving for my retirement. Investing over time I believe is the right decision for me. I can take advantage of yearly tax allowances in the form of ISAs and a pension and hence I have decided not to focus on paying off the mortgage faster.
It’s impossible to predict the returns on investments – past performance does not guarantee future results, and hence I’ll only know with hindsight whether this was the right call.
Determine your risk appetite, understand your financial decision and learn about the process before you commit. Investing can be very lucrative, but you need to make sure it is the right option for you. If you want to grow your wealth to meet your financial goals, then investing may play a key part.
The information provided in this blog should not be considered financial advice. Remember investments carry risk and may go down in value. Please do your own research and if in doubt seek independent, regulated financial advice.
