words Al Woods
It is very important to look at the total return you get from an investment. There are some that will offer an income, others capital gains (this is the profit you make after selling the investment) – or both.
It is also important to remember that there are some costs that might come when you hold certain investments, like maintenance work, broker fees, or storage. You also need to account for inflation and taxes before calculating the actual return.
Below are some of the best ways of investing your money:
Putting your cash in the bank
Cash is not a great investment even though it is a safe option because you know exactly how much you have – especially with the low-interest rate being paid by banks. Inflation is usually high than interest rates, which means your money is going to lose value with time.
If you don’t want any risk and looking at a long-term plan, then go ahead and put the cash in a savings account (make sure you choose the tax-free cash ISA) so you can get some interest. Choosing a fixed saving account for three or five years is going to give you the best interest rates, but keep in mind that you are not going to access your money during that period, and you can end up losing out interest when rates improve.
Whatever you choose to do, never keep it under the mattress. You are losing the most when you do this, and there is a risk of losing everything when you get burgled.
Stocks, equities, and shares
Shares, stocks, and equities are different names referring to the same thing. The US prefers to use the term stock while the UK uses shares. It represents a take in a company. The case for investing in financials is strong.
When you become a shareholder, you can sometimes get a dividend (this is a payout from the profits) two times a year, although there are some that pay up to four times.
Shares can work the same way as buy-to-let properties because there is an income you get when you own them, and the value of the shares is going to grow because the value of the companies increases. Equities are much cheaper to hold and you can start by investing small amounts.
If you aren’t sure about investing yourself, then you should consider looking at funds such as investment trust and unit trust. This involves pooling your cash and that of other investors into shares. There is a manager handling all the investment for you, and you don’t have to do anything.
Investing in art, antique, wine, and collectibles
Collectables tend to be cheap, making it an affordable form of investment when you are on limited means. Don’t see this as an easy path to riches because it is not. Don’t start investing with this type of mentality because you are going to be disappointed.
You are not going to get any immediate income, and you have to hope that someone is going to pay you more than you bought it for. There is also the fact that what is considered desirable today might not be next year.
You have to be an expert in what you are collecting, or else you might end up being taken for a ride by those who know what they are doing. The internet has made things easier because you can easily sell them online instead of old-fashioned auction houses. You also have a global marketplace.
Your strategy will involve sourcing desirable items where there are fewer target buyers (such as a car boot sale or online classified website Gumtree) and then selling the items in high demand areas (like eBay and other online auctioneering sites)
Don’t fall in love with the items you are going to collect – it can easily turn the process into an expensive hobby instead of an investment.
Putting your money into property
Buying you’re their own home is one of the best investments many people make, and you should always make it as soon as possible.
Looking at history, the value of homes rises faster than inflation, and there will be a day when you are going to clear your mortgage. Rents keep going up, and you need somewhere to live.
Once you have invested in your first property, you can then start climbing up the ladder when your income increases. You can even choose the buy-to-let strategy where you own a property that gives you income while increasing in value.
The downside is you have to commit a lot of cash to the investment, and managing the property and tenants is a time-consuming process. Make sure you set aside something to use in covering maintenance bills (there will always be issues coming up)
Looking into bonds
Many companies and governments usually borrow money and issue investors with IOUs. These investments have always been considered safe. You can buy them directly as apart of a fund and also as equities using a broker.
They have a guaranteed interest rate and a date on when you can redeem them. The borrower is going to buy back the bond at full price, which is known as par or nominal value.
There is a yield that is going to be paid out as interest every year, and the rate is going to reflect how risky or safe the investment is for investors. If it has a lower yield, it means it is a safer debt.
Bonds issued by governments are safer than company debts and are also known as sovereign debt. This is because it is harder for a government to go bust compared to companies (but keep in mind that there are some countries like Argentina and Greece that have recently been having a hard time honoring their obligations).
You can sell the bonds any time you want, which is different from fixed-term savings accounts. The complications that come with it is you are not going to buy it at 100p in the pound. They tend to trade at the market value – this is what investors are willing to pay.
The price of the bond will rise when interest rates are low, and this will result in a lower return on your investments. The market value falls when the interest rates rise.
Investing in Digital Assets
There are plenty of digital assets to invest in nowadays and more and more people are investing their money in websites and apps.
Websites such as Flippa or Empire Flippers mean people are increasingly investing their money into online businesses. These online businesses can be quickly built up and scaled and in turn people sell these businesses for a multiple of what they earn – typically 20-30x monthly revenue. Any sort of website model can work – from selling a physical product, to drop shipping to even amazon affiliate sites.
This can be a wise way to get yourself into online investing and making money.