Investing


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InvestingInvesting is the activity of committing money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value.

Although there is some overlap, investing is not to be confused with saving which is the low-risk preservation of money in deposit (cash) based accounts.  Also, trading is a form of investing but traders tend to buy and sell much more frequently than true investors, who hold their assets longer for appreciation of value.

Based on the book 'Cashflow Quadrant' taken from a book of the same name by Robert Kiyosaki, investing is a passive method of growing wealth (see image below).

Cashflow Quadrant

The primary aim of investing is to have money work for you.

From a financial perspective, the key to lifestyle is to have enough money coming in to support that lifestyle, without having to constantly work for it.

You can only do this by using the leverage of other people, systems or money.

This section of the website focuses on the different investing options that are available.


Different Investing Options

There are many different vehicles and assets you can use to grow your wealth and they all have their pros and cons.  These include:

  • Pensions - in the UK, pensions are a form of saving and investing in various assets and deposit accounts that have favourable tax advantages
  • Stocks & Shares - when you buy stocks and shares of a company, you are effectively lending your money to that company  in return for an equity stake. If the company uses the money wisely, you are rewarded with equity growth and/or income in the form of dividends
  • Stocks & Shares ISAs - let you invest tax free in various vehichles.  These include stocks & shares, bonds and collective investment schemes such as open ended investments companies (OEICs), exchange traded funds (ETFs), unit trusts and investment trusts
  • Commodities - include all fungible goods such as coffee & sugar (agriculture), copper (metal) and petroleum (energy).  They are usually relatively safe investments and can be used as a hedge against risk and inflation as they tend to negatively correlate with stocks and bonds
  • Collectables - are usually rare items and perhaps the best example is art.  This is a specialised market and not as liquid as most other markets
  • Bonds - are a contract where you lend money to an organisation (Company or Government) in return for interest payments at set intervals or on maturity
  • Property & Land - are seen as relatively safe investments as everyone needs somewhere to live and as long as populations keep growing, demand increases

How Do I Choose The Right Investment?

When it comes to investing, there are a number of different factors you need to consider before you decide where to put your money.  These include:

  • How much money do you have and do you want to invest a lump sum, or regular amounts?
  • How long do you want to invest for (tie up your money)?  Generally, the longer you can tie up your money for, the more risk you can take and higher returns you can achieve
  • Is your main aim equity growth or income?  This question will probably be related to your age: younger people tend to focus more on growth whereas older people tend to have income as a higher priority
  • What other investments do you have?  More serious investors usually build a portfolio of investments in different asset classes, which usually include some for growth (higher risk), some for income (lower risk) and some for easy access that can be quickly turn into cash (liquid)
  • What do you WANT to invest in?  Perhaps you have a lot of knowledge in a specific sector or type of business which puts you at an advantage over the majority of other investors in that type of investment.  Maybe investing in green or ethical companies is important to you
  • What other benefits do you want such as tax advantages or flexibility?

Quick Tips For Investing

Before you start any endeavour, it's always wise to understand the basics first and have the right fundamental approach.  Investing is no different and here's some general tips:

  • Investing is always about risk and reward and you need to understand your own risk profile: take our online Financial Risk Profile Questionnaire here
  • Never invest money into riskier investments that you cannot afford to lose
  • Either take the time to learn about investing (e.g. stocks & shares, property) or use a professional such as an IFA
  • Make sure you're as tax efficient as possible by taking advantage of ISAs and pensions and also, using a good accountant or tax specialist
  • Although it's wise to really know a particular market and specialise - don't put all your eggs in one basket.  Over time, build a balanced portfolio through good asset allocation
  • Never let emotion (fear or greed) drive your investments. Follow a system and stick to your plan
  • Learn to limit your losses.  For example, with stocks & shares or fund trading, this can be as simple as using stop losses
  • Be patient and give it time for compound growth to work in your favour

Useful Links

>>> Learn more about pensions
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Learn more about Stocks & Shares
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Learn more about Stocks & Shares ISAs
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Learn more about investing in property
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Stock Market Trading Seminars
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Speak to an Independent Financial Adviser
>>>
Investment Listings
>>> Recommended books on investing

 

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