Investing your assets is something a lot of us intend on doing but don’t get around to it for one reason or another. However, there are a number of things you should know before doing so – take a look at these investment tips.
#1 – Equities Out Perform Savings
Shares, which are also called equities, give you a stake in a specific company. Shares have a tendency to increase in value when the company is doing well and falls when it isn’t.
It can be nerve-wracking to invest your money in highly unpredictable markets. However, history has shown repeatedly equities outperform cash savings over the long term.
This really shouldn’t be very surprising when you take into account the pitiful returns banks were offering on savings accounts for the past several years.
According to the financial site Moneyfacts, the average cash savings account only pays 1.59%. That is less than the current 1.6% rate of inflation, which means that most cash savers in real terms are losing money.
However, as investment fraud attorneys Sonn Erez suggest – don’t be too reckless either.
#2 – Investing Isn’t Just For High Rollers
You don’t need to have a bank balance like Warren Buffett’s to invest in the stock market. A majority of investment funds accept lump sums of £500 to £1,000 or £50 monthly deposits.
In the US, there are online brokerage accounts with no minimums ranging up to $10,000. However, you do need to be able to handle watching your investment rise and fall with the passage of time.
When investing it should be for the long-term. You should be prepared to keep your money invested for at least five years, and up to a decade or longer ideally.
Therefore it’s best suited for those who have long-term financial goals such as saving for a child’s education or retirement, rather than a new car or house deposit.
#3 – Have An Exit Strategy
While investing may be for the long-term it’s still important to have an exit strategy – the conditions under which you will sell a stock. This strategy should be in-place before buying any stock.
For example, experienced investors will sell their stock at any time when the closing day price drops 10 to 20% (depending upon your tolerance of risk) from the highest value. This strategy protects your investment from severe losses which may be difficult to recover from.
Another practice of experienced investors is selling a portion of your stock holdings when the stock value reaches double the amount of your original investment. This practice allows you to protect your principal from future losses.
#4 – Investing Has Tax Advantages
Savings are entitled to receive a yearly tax-free allowance of as much as £11,880 this year on the money you invest through shares Isa and stocks. On 1 July, the allowance will increase to £15,000.
Capital gains are not paid on any interest paid or income earned on investments made via an Isa. A flat 10% rate is paid on any dividends. Higher-rate taxpayers benefit from this in particular since they would be paying 32.5% otherwise.
#5 – Think About What You Would Like to Invest in
Traditionally, cash is seen as the least volatile asset class. Your money will be safe unless a building society or bank goes bust. However, inflation can erode its buying power and you can end up losing money.
Fixed interest investments, or loans to governments (gilts or government bonds) or to companies (corporate bonds), offer reliable but modest returns. They are regarded traditionally to be lower risk compared to equities.
However, the risk profile is starting to change. Whenever interest rates start to go up, their prices might drop and there is an increased risk of losing capital.
It’s also possible to invest in commodities like oil or steel, commercial or residential property.
#6 – Don’t Place All of Your Eggs into One Basket
If all of your hard-earned money is funneled into a single’s company’s shares and the company ends up tanking, you’ll end up losing everything. What you want to do is diversify.
This involves dividing your lump sum up over a portfolio and then investing parts of into various global markets, asset classes or companies.
While some markets might fall, others may rise to cancel losses out. The way you spread out your money will be determined by what your attitude is towards risk. Investors who are cautious won’t want to have a lot in equities.