Should I Start Investing? Tips for Beginners
Inflation is rising dramatically, exceeding even the high forecasts made at the start of the year –– and eating into people’s savings. At times like this even more than usual, many of us start to wonder about investment as a means of maximising wealth.
The right investments will yield greater returns than the small interest rates attached to savings accounts; they may also protect finances against issues like decreasing currency values. And of course, even in ordinary times personal investment is viewed as a sound aspect of a comprehensive personal finance strategy, with the potential to generate long-term savings and short-term supplemental income alike.
With all of this in mind, here are some important questions and tips to consider for those who are considering first-time investments.
Is Property A Good Investment?
During the pandemic, many of those who can afford it have invested in property thanks to rising prices and lowering mortgage interest rates. A report from a commercial property survey in Thames Valley that we covered last year also touched on factors like high demand for industrial and office spaces as people moved out of London –– as well as increasing enquiries into converting commercial into residential (which is always in demand).
As with any market, property can’t be guaranteed to keep gaining value indefinitely, and there can be “price corrections” when real estate gets overheated. But in the UK, this market is often seen as one of the safer bets for long-term investors thanks to the fixed supply of land. Meanwhile, rental yields usually see well over 5% return on investment, and many people choose to increase the value of their existing property by building extensions and the like.
Neither is necessarily “easy money,” mind you. Profitable real estate investment typically involves time and effort spent on everything from negotiation, to permission acquisition for various improvements, to maintenance.
How Many Investments Should You Make?
Since all investment means exposing yourself to some level of risk, it’s generally wise to avoid putting all your eggs in one basket –– particularly when investing in something volatile like stocks. There’s something of an art to this, since there are quite a few metrics that help to decide if an investment should be considered high or low risk. Furthermore, as one GQ guide points out, over-diversification is also a risk. Still, there are ways to simplify your portfolio strategically when you’re starting out.
If you want to stick with established institutions, banks and building societies do offer higher risk-reward options that you can “set and forget” (the only building society in Henley-on-Thames itself currently being Nationwide). There are also a plethora of apps like eToro and Wealthsimple that provide options for different categories of investment, with consideration of how much risk you want to tolerate and how personally involved you plan to be.
What Is Spread Betting And Is It Worth It?
If you’re considering investing but you’re wary of the responsibility (and difficulty) of buying and selling assets, it’s worth noting that some investors also make money based on the general ups and downs of the markets –– through a process called spread betting.
A guide to spread betting on FXCM conveys that essentially, this is a process by which you make a prediction that a market is going to move in one direction, and earn a return based on how close you were (the “spread”). Rather than having to buy and sell the underlying assets, the investor makes a more general decision in advance. Spread betting is available in all sorts of asset classes, from foreign exchange to shares and commodities. It is also tax-free.
How Long Should You Invest For?
As a general rule, very short-term investing is for more high-risk bets on market fluctuations, while long-term investments are meant to wait out ups and downs over time for gradual gains. An overview on The Times recommends investing for no shorter a period than five years with £10,000, with suggestions on how to invest depending on whether you want to go for a short-term (5-10 years), medium (10-30 years), or long-term gain. Ultimately, different investments are suited or even designed for different lengths of time –– which is vital to consider as you feel out which markets and methods most interest you.
With any form of investing, you’ll want to consider how much you’re willing to lose, and how much you’ve got to fall back on. Additionally, bear in mind that there’s a lot of terrible advice out there –– so research as carefully as you can. And even when you’re ready to dive in, consider starting small to gain experience on your own without significant risk.