This simple question has no right or wrong answer but there are a multitude of options. If you’re in the fortunate position of having surplus cash and you’d like to invest it wisely, investing can be a minefield of conflicting advice and confusing information. The right answer for you comes down to three factors:
- How much money do you have to invest?
- How much risk are you willing to take?
- Do you have a financial goal in mind?
Whether you’re saving for something specific, boosting your State Pension, or building a nest egg, the following suggestions should help.
Investing for beginners
My favourite investment options are:
- The Stock Market
- Index Tracker Funds
- Investment Bonds
- Physical Assets or Commodities
In the financial arena, risk = reward, so the more you’re willing to risk, the higher the potential reward, but most investors prefer to play it safe and that’s why it’s good to do your homework before being tempted by the promise of high returns.
The Stock Market
This can be an exciting place to invest your money and is as safe or as risky as you can handle. I like it because I can invest small or large amounts of money in companies I am interested in, effectively buying a share of a business I like or admire. This makes following it in the news a fascinating prospect because I have a stake in the business.
Once you’ve opened a broker account, you can deposit a lump sum, or make regular deposits as frequently as you like. Stock and Share ISAs offer easy investing while avoiding tax on your gains.
Cost: A broker charges fees and each trade incurs costs.
Tracker funds are another way to access the stock market, but with an added layer of security and simplicity. For example, investing in a FTSE 100 tracker fund means I get to own a tiny piece of each company in the FTSE 100, diluting the risk and giving me a more varied investment. The fund follows the progress of the market it is tracking, so a FTSE 100 index fund tracks the top 100 companies on the London Stock Exchange.
Cost: An annual fee of between 0.07% and 0.2%, compares well to actively managed funds that cost considerably more.
Bonds are usually for the long term, (five to 10 years or more) and often act as a life insurance policy. The lump sum you invest is distributed between funds. If you cash them in, your return will depend on the overall investment’s performance. Some bonds guarantee you’ll get more than you paid in, others come with an element of risk.
Cost: A lump sum, usually between £5k and £10k.
Physical assets and commodities
Physical investments are another way to invest your hard-earned cash. Whether you’re buying property, gold coins, rare whisky or even signed memorabilia, it can be a way to combine your hobby with investing. However, the downside to this is that you have to store your purchases somewhere and insure them. Property ownership will always incur maintenance costs.
Cost: Storage, insurance, maintenance
All-in-all, my favourite way to invest is in the stock market. All financial investments involve an element of risk. Your appetite for risk will determine which option you prefer, and your long-term goal will guide you.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.