Understanding investment
Investment can seem like an attractive option for increasing return on your capital, especially when interest rates on savings accounts are so low.
Whether you are looking to invest yourself, or for someone to invest your cash on your behalf, there are several factors you should consider before you begin.
How much can you afford to invest?
It is important to recognise that when you begin investing your money you will introduce an element of risk to your capital. Generally the higher the potential for return the higher the risk to your capital, so don't be sucked in by high rates but consider carefully how the investment would sit with your attitude to risk.
Before you start investing you should ensure that you finances are in order and that you are not investing with money that you can afford to risk losing. For example, will you be able to pay all your debts easily? Do you have a buffer of savings to fall back on? Many experts recommend that you have the equivalent of at least three months wages to fall back on in case of hard times.
Why are you investing?
Before deciding on the right investment option for you, you should have some sort of financial goal in mind. Are you looking to generate an income from your investment, or simply to increase your capital?
Set a time frame within which you can realistically achieve your financial goals, and decide on how long you are willing to commit your capital in order to achieve your desired returns. This will help you to find the right kind of investment for you. If you have goals in mind, you can easily tell when they do not live up to or exceed your expectations.
What type of investment?
There are four main investment options available-
1) Stocks and shares
2) Investment funds (including Unit trusts, OEICs and tracker funds)
3) Investment trusts
4) Bonds
The right one for you will depend on you attitude to risk. For example bonds tend to be a safer option than investing in stocks and shares, but you will be likely to see lower returns. which option is most suitable for you will also depend on whether you are looking to make a lump sum investment or if you want to invest more regularly in smaller amounts.
Diversification
Investment almost inevitably comes with an element of risk, however by diversifying your investments you can reduce risk. Investing in areas of assets that have little in common means that if one area fail it won't take your full investment down with it. You can diversify your investments by putting money into different companies, markets, assets or types of investment.
Understanding investment can be complex, and you may want to seek professional advice those who have a greater understanding of the market.
Investment can seem like an attractive option for increasing return on your capital, especially when interest rates on savings accounts are so low.
Whether you are looking to invest yourself, or for someone to invest your cash on your behalf, there are several factors you should consider before you begin.
How much can you afford to invest?
It is important to recognise that when you begin investing your money you will introduce an element of risk to your capital. Generally the higher the potential for return the higher the risk to your capital, so don't be sucked in by high rates but consider carefully how the investment would sit with your attitude to risk.
Before you start investing you should ensure that you finances are in order and that you are not investing with money that you can afford to risk losing. For example, will you be able to pay all your debts easily? Do you have a buffer of savings to fall back on? Many experts recommend that you have the equivalent of at least three months wages to fall back on in case of hard times.
Why are you investing?
Before deciding on the right investment option for you, you should have some sort of financial goal in mind. Are you looking to generate an income from your investment, or simply to increase your capital?
Set a time frame within which you can realistically achieve your financial goals, and decide on how long you are willing to commit your capital in order to achieve your desired returns. This will help you to find the right kind of investment for you. If you have goals in mind, you can easily tell when they do not live up to or exceed your expectations.
What type of investment?
There are four main investment options available-
1) Stocks and shares
2) Investment funds (including Unit trusts, OEICs and tracker funds)
3) Investment trusts
4) Bonds
The right one for you will depend on you attitude to risk. For example bonds tend to be a safer option than investing in stocks and shares, but you will be likely to see lower returns. which option is most suitable for you will also depend on whether you are looking to make a lump sum investment or if you want to invest more regularly in smaller amounts.
Diversification
Investment almost inevitably comes with an element of risk, however by diversifying your investments you can reduce risk. Investing in areas of assets that have little in common means that if one area fail it won't take your full investment down with it. You can diversify your investments by putting money into different companies, markets, assets or types of investment.
Understanding investment can be complex, and you may want to seek professional advice those who have a greater understanding of the market.
John T Hughes writes for Share Dealing Account, a leading online source of information on share dealing accounts in the UK.
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