Did you know that 33% of British residents owned at least one stocks and shares ISA in 2020, up by 50% since 2018? A lot of people, myself included, started investing due to the stock market volatility in March 2020 caused by the pandemic. And since then I have increased my portfolio value considerably!
So, what is investing and how can you start?
What is investing?
Investing refers to purchasing assets and expecting that they will grow or increase in value over time. For instance, when you invest in a company or buy a portion of it – you purchase a “share.” Your investment goes up or down in value, depending on the company’s growth and the market outlook.
You can invest in different things, such as government bonds, stocks, property, equities, and even gold. You can also purchase shares in the financial markets, where you can buy and sell investments. Besides, you don’t need a lot of money to start investing.
For example, Hargreaves Lansdown is the most popular UK investment website, allowing you to start investing at £25 per month. If you want a lump sum investment, you can start for as little as £100. There are various other options to invest, such as Moneybox, an app that allows you to invest as small as £1.
What to invest in?
Proper investing is directly proportional to increased financial security, allowing you to grow your wealth by generating multiple income streams. Having a diverse portfolio in various investments can provide stable growth and income, especially when combined with compound interest.
So, what can you start investing in?
Bonds are loans taken out by a company that pays an interest rate over a specific period. At the end of this period, the company repays the loan, so the investor receives their capital back. Investing in bonds has its own advantages, such as a predictable income stream, receiving interest two times a year. You can invest in bonds to counterbalance exposure to volatile stock holdings.
Investing in equities means buying a share of a public organization or company. The performance of the organization determines the value of your share, making it go up or down. The organization also distributes a dividend based on its profits. However, not all companies do this. Therefore, it is wise to do your research before you invest in “equities.” Benefits of equity investments include:
- Fund management
- Portfolio diversification
- Tax efficiency
- Financial regulation
- Risk mitigation
- Higher profit potential
3. Property Funds
Property is a physical asset, meaning you invest in bricks and mortar. Investing in property funds is primarily accessed through commercial properties, including shopping centres, industrial warehouses, and offices. However, residential property is also an option.
There are various reasons to invest in property funds or real estate. These include increased cash flow, tax breaks, and deductions, portfolio diversification, real estate leverage, building equity and wealth, inflation hedge, and risk mitigation regarding low returns on investments.
Investing in real estate is usually less volatile than other investments, including stocks and shares. For instance, you can earn rental income by tenanting your property. Likewise, you can sell the property to achieve higher capital gains if the property’s value increases over time. That’s why it is a viable option.
A stock market is where a wide range of organizations or companies make their shares available to investors, allowing them to purchase their shares. As an investor, you can choose multiple stocks of different companies to build a robust investment portfolio.
According to thetimes.co.uk, the potential gains people make through stock-based investment are far greater than other types of investments. For instance, you can invest in ISA and drive substantial growth that is also tax-free. I managed to do just this by investing in ESG funds last year!
Investing in stocks offers a wide range of advantages, including increased dividend earning potential or a 10% average return per year. On the other hand, a stock market is highly volatile, and you may not receive valuable returns.
How Much Do You Need To Start Investing In Stocks?
Gavin Haynes, the director of White Church Securities, says that people can start investing in stocks for as little as £50 a month. However, if you want to invest a lump sum, you will need at least £1,000.
Read next: How to analyse a stock
Investing in stocks usually has a higher potential of returns than other investment types over the long term. Some stocks also pay dividends, allowing you to safeguard yourself when there is a drop in share price.
At the same time, you can use the dividends to buy more shares. Stocks prices fluctuate from time to time, depending on their supply and demands. For example, if a stock drops to zero, you will lose all of your investments.
Saving vs. Investing – Which one is better?
Saving refers to putting your money aside in a safe place, such as a building society or high street bank. Saving is often short-term because you will need the money for a rainy day or any other household chores. So, you can withdraw your money from your bank account anytime you want.
The bank will protect your money, and the returns are relatively limited or lower with a low-interest rate. Bear in mind that cash carries many risks because it may decline in real value due to inflation.
On the other hand, investing means putting your money into different assets, such as shares, stocks, bonds, or property. The primary aim of investing is to protect and increase your monies’ value over time.
Investing in assets allows for regular income or capital growth. However, there is no guarantee of your income or growth. Anyway, investments are more valuable than savings and have a higher likelihood of increased returns on investments (ROIs).
Setting aside money for saving purposes is a safe idea because you may need that money if your financial situation becomes unstable. Also, you can spend money on unnecessary expenditures.
On the other hand, investing your money in assets, such as stocks, bonds, or real estate will secure your future, create multiple income streams, and lead to financial stability over time.
We recommend performing thorough research to know your investment options and choose the one that best fits your needs and budgets. Make sure you perform a risk analysis to understand your odds before investing in the assets given above.
James is a Senior Account Manager who graduated from the University of Kent in 2014. His background is in eCommerce and SEO (working with clients such as HSBC UK and Nestle) and he has a keen interest in money-saving advice.