When it comes to investing money, the first thing to know is that investing isn’t a ‘one-size-fits-all’ activity. What’s right for one person could be totally wrong for someone else. Let’s take a look at how it all works.
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The best way to invest money for you
Essentially, the right investment opportunity for you comes down to:
- How much money you can invest
- The amount of risk you’re comfortable with
- How quickly you want to see a return on your money
Preparing to invest
So before you start investing, you need to do two things:
- Set short- and long-term goals. Why? Because for short-term goals (e.g. you want to buy a new car in the next couple of years) it might be better just to save money or pick less ‘risky’ investments. On the other hand, if you’re planning for the future (e.g. 10 years from now) you should definitely consider investing rather than saving.
- Reduce your debt as much as possible. If you’re trying to pay off credit cards and personal loans, it’s better to clear these debts before risking your money in investment opportunities.
Ways to invest
If you’ve decided that investing is right for you, here are some of the best ways to invest money, starting with the least risky.
1. Savings accounts
Okay, so saving money isn’t “technically” investing, but it’s probably the first thing you’ll need to do before you invest anywhere. After all, the more money you save, the more money you’ll have to invest.
The best part? If you open a high interest rate savings account, you’ll actually make money on your savings. So in other words, starting a savings account is a great way to test out investing for yourself.
Gilts are UK Government investment bonds. If you buy one, you’re essentially lending the government money.
On the plus side, government issued bonds are about as close to risk-free investment as you can get. The downside? There’s not much profit to be made.
3. Mutual funds
A mutual fund draws together investments from multiple investors. The portfolio manager then decides which stocks and bonds to invest in, which makes it a more attractive option for less-experienced investors than going it alone in the stock market.
But while mutual funds can be less risky than buying stocks yourself, there’s no guarantee you’ll get a return.
Compare stocks and shares ISAs
If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.
If you buy when the price is low and sell when the price is high, it’s a lucrative investment opportunity. But it’s a long game, and there’s always the risk you won’t get back what you put in.
5. Real estate
With property investment, you can:
- Buy a flat and rent it out
- Purchase a few properties, renovate them, and flip them for a profit
Larger upfront costs are a downside, but here are some other possible disadvantages:
- Market fluctuations can make some properties harder to sell
- The costs are sometimes much higher than you estimate
- If tenants don’t pay, you’ll lose money
6. Valuable items
Fancy investing in luxury items like fine wine, antiques, art, or classic cars? Then you need to take on a fairly high amount of risk.
Market values fluctuate all the time, so you’ll probably see the asset value rise and fall over a short timeframe. On the other hand, you could see great returns when market conditions are optimal.
Bitcoin, like other cryptocurrency, is one of the riskiest investment options out there. It’s a highly volatile marketplace, and there’s every chance your investment could sink. However, for more experienced investors, it might be worth adding some Bitcoin to your portfolio and seeing how it plays out.
It’s often a good idea to diversify your investments. If you put all of your money into one opportunity – for example, shares – you risk losing it all if things go wrong.
How much to invest
You can start investing with £5 a month in a savings account, and you can buy shares for just a few pounds. You’ll need significantly more capital for larger investments, such as real estate.
While there’s no way to invest money that’s best for everyone, there are so many opportunities out there that you can easily build a portfolio to suit your specific needs. It’s all about how much risk you’re comfortable with, and how much you can afford to lose.
That said, if you’re new to investing, it’s probably best to start with low-risk opportunities to learn the ropes.
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