Investment Needs

For many people, the word “INVEST” raises up images of men in suits, monitoring the exchange of millions of dollars on a stock ticker. Well, you do not need to be the ‘Wolf of Wall Street’ to start investing and earn great returns on your investment(s). It’s okay if you’re more of a mouse of Main Street. Even if you only have a few dollars to spare, maybe you don’t know the available investment options. The key to building wealth is developing good habits— like regularly putting money away every month.

Ways An Investment Can Make Money

There are three ways that an investment can make money. One, by lending money to someone who pays interest on it, be it a business or a government. Two, by becoming a part owner of a business, like having a share in it. And three, by buying

What is risk versus return?

Investing can be a highly effective way to grow your money and build a foundation for the life you want to create for yourself.

It’s also important to be aware that investing is not a risk-free strategy and there’s always a chance you could lose money or not make as much as you expected.

All investments carry some risk due to factors such as inflation, tax, economic downturns and drops in particular markets. Different types of investments carry different levels of investment risk, and also different returns. As a general rule, the larger the potential investment return, the higher the investment

risk.

Cash provides lower returns and a lower risk of loss, while growth investments something that becomes more valuable, like gold or real estate. The universe of investment options boils down to just these three components.

What are the different types of investments?

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.

Once you are familiar with the different types of assets you can begin to think about piecing together a mix that would fit with your personal circumstances and risk tolerance.

Growth Investments These are more suitable for long term investors that are willing and able to withstand market ups and downs.

Shares

Shares are considered a growth investment as they such as shares may provide higher returns and are higher risk.

Managing Investment Risk

While taking on any kind of risk can be a scary prospect, there are four key strategies you can use to minimise your exposure to investment risk: Timeframe: The longer you stay invested, the less investment risk you are exposed to because fluctuations in the value of your investment will even out over time. If you’re not comfortable with a certain type of investment, or a certain level of risk, it’s not worth investing in that product.

Diversification: Spreading your money across different types of investments rather than relying on one asset class may help shield you from drops in particular markets and deliver more consistent returns over can help grow the value of your original investment over the medium to long term.

If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.

Of course, the value of shares may also fall below the price you pay for them. Prices can be volatile from day to day and shares are generally best suited to long term investors, who are comfortable withstanding these ups and downs.

Also known as equities, shares have historically delivered higher returns than other assets, shares are considered one of the riskiest types of investment.

Property

Property is also considered as a growth investment because the price of houses and other properties can rise substantially over a medium to long term time.

The more you understand about investments and financial markets, the better you’ll become at selecting investments that are appropriate for you.

What Are Stocks and

Shares?

Buying shares has historically given a better chance of making your money grow over a long period than other investments, but with that potential comes a higher risk of losses. Companies issue shares to raise money. When investors buy those shares, they effectively get a stake in the business and the chance to make a profit if the company does well.

When you become a shareholder in a business you usually acquire certain voting rights, although only very large shareholders have any real say in how the company is run.

Shares are sometimes also known as equities, period.

However, just like shares, property can also fall in value and carries the risk of losses.

It is possible to invest directly by buying a property but also indirectly, through a property investment fund.

Defensive Investments These are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments.

Cash

Cash investments include everyday bank accounts, high interest savings accounts and term deposits.

They typically carry the lowest potential returns of all the investment types. While they offer no chance of capital growth, they can deliver regular income and can play an important role in protecting wealth and reducing risk in an securities, or stocks.

What are the benefits? Shares can rise in value over time and you may be able to sell them for more than you bought them, with the difference in those prices known as your capital growth.

If you buy $1,000 worth of shares and you sell them for $3,000, then your capital has grown by $2,000, prior to capital gains tax.

Another way you can make money by investing in shares is through dividends.

When a company makes a profit, it may choose to distribute a portion to its shareholders through dividend payments. Companies are not obliged to pay dividends but if they decide to, they will typically announce the size of the dividend in tandem with their full or half year financial results.

Larger, well established companies are generally investment portfolio.

Fixed Interest

The best known type of fixed interest investments are bonds, which are essentially when governments or companies borrow money from investors and pay them a rate of interest in return.

Bonds

Bonds are also considered as a defensive investment, because they generally offer lower potential returns and lower levels of risk than shares or property.

They can also be sold relatively quickly, like cash, although it’s important to note that they are not without the risk of capital losses. more likely to pay dividends than smaller, newer companies.

It’s important to remember that just like share price growth, past dividend payments are no guarantee of future ones.

What Are The Risks?

Shares are considered to be the most risky of the asset classes. The price of shares can fall as well as rise, which means you could lose money. In the worst case scenario, you could lose all the money you invested in the shares of a company if it goes bust, as shareholders are last in the queue to get their money back.

Again, larger, more established companies are considered less risky than smaller, start-up companies as they are less likely to go out of business, but the disintegration of Lehman Brothers in the US, proved that it can still happen.