Finance

Investing for dummies: understanding the basics of making your money do more

Investing is a fantastic way to make your money go further and can provide you with long-term profits. Whether you want to build on your retirement fund, or pay off your university tuition, investing can help your hard-earned cash stretch further. Though the process of investing may seem intimidating, making sure to pay off pre-existing debts and having some savings can go a long way to making the process of investing less risky. If you are interesting in the best ways to invest your money wisely, read on as we cover the basics.

Shares are a type of growth investment, as they help to grow the value of your first investment over the long term. By owning shares, you can often receive money from dividends – which is when a portion of company profits is given to shareholders. There are a few risks to investing in shares, however. The price can easily fall below what you originally paid for them, creating a loss on investment. Shares are therefore better suited to longer-term investors who understand the intricacies of the market. As it is considered to be one of the riskier types of investment, make sure to do thorough research before participating in shares.

Property

Property can be a highly profitable form of investment for those who are patient. The housing market is constantly evolving, with prices fluctuating significantly. This can lead to a significant profit over the medium to long-term period. There is also a risk of loss, meaning that investors in property should research the housing market well before investing hard-earned cash. And, as your portfolio grows, consider working with a company like Atlas Lane Property Management DC to take the stress, hassle and day-to-day management out of your hands.

Defensive Investments

A defensive investment strategy is considered lower risk in comparison to growth investments, as it is primarily focused on consistently generating income. It involves purchasing high-quality and short-maturity bonds, as well as blue-chip stocks, making sure to buy across a number of different sectors and countries. By applying defensive investments, your portfolio will be regularly rebalanced to maintain an intended asset allocation.

Cash

While cash investments carry some of the lowest potential returns, they can help to bring regular income, protect wealth and reduce the risk involved in maintaining an investment portfolio. Cash investments incorporate bank accounts, term deposits and high interest savings accounts.

Bonds

Considered both a fixed interest investment and a defensive investment, bonds are used by governments and companies to borrow money from investors and to pay them a rate of interest in return. They can generate fairly low potential returns but also have lower levels of risk in comparison to investment in property or shares. Like cash, bonds can also be sold relatively quickly, giving investors a quick profit. It is important to understand that there are still risks when investing in bonds and they can incur capital losses.

Stocks

Stocks involve buying part ownership shares in a company, known as equity shares. There are risks with investing in stocks, given that your return depends on the successes, or failures, of a company. There are two primary ways to earn money through stock investment; dividends and capital gains. Some publicly owned companies are profitable and therefore choose to distribute some earnings to shareholders by paying them a dividend. This profit can either be converted into cash or can be reinvested to purchase more shares. Capital gains are different in that stocks are bought and sold daily, and prices constantly fluctuate. By selling your stocks for more than you purchased them, you incur capital gains. Before investing in any stocks, make sure to thoroughly research the market as it can fluctuate very quickly.