Even a brief glance at the financial pages of your newspaper is likely to reveal a huge host of so-called investment opportunities.
So what is an investment and in what way does it differ from an alternative source for any disposable income you may have – such as a savings account? Here is our investment guide.
Who might investment products be suitable for?
The person interested in investing is likely to be an individual prepared to put a given sum of money at risk in order to:
increase the capital value of the sum invested;
generate an income from the investment; and
maintain the level of personal savings.
The pursuit of these goals through investment runs the risk of your money not only failing to meet the expected targets but considerably falling in value – in some cases even as far as a total loss.
In view of risks being run, the investor is likely to be the kind of person to have established certain safety nets before deciding to invest:
debt – debt and investment make uncomfortable bedfellows, so the investor is typically going to sort out any outstanding debt before giving thought to investing in a venture which might add still further to a position of debt;
savings – with money invested running the risk of falling in value or being lost, an investor is likely to have first established a solid basis for savings as a safety net;
insurance – protecting income and the financial security of any dependents may become still more critical to the investor, who is likely to look towards income protection insurance, sickness cover and life insurance as matters of priority;
What do investments typically cover?
In terms of investment vehicles, there is a practically endless list of possibilities, which may include:
government bonds (your lending to the government);
corporate bonds (your lending to the companies you choose); and
shares in companies (your stake in the equity ownership of a company).
To this list might also be added one of the avenues for investment more recently promoted by the government and that is social investment (in charities and social enterprises). Investment in art, wine and other collectibles is also a possibility.
Is there anything I need to know about investing?
As already mentioned, the possibilities for investing your money are practically without limit – and the number of individuals, companies and charities clamouring for your investment is likely to be similarly large.
Given the risks you are taking with your own money, investing is unlikely to be for the faint-hearted and the manner of your investing it is almost certainly going to take advice and guidance from professional financial advisers in these areas of activity.
Professional advice might be especially relevant, for instance, in ensuring that your investments are sufficiently diversified. That is to say that you have avoided putting all your eggs in one basket by making certain to spread your investments across a range of different sources.
Diversification is likely to result in your building a portfolio of investments representing different types of asset (shares, bonds, and the like), in different sectors of the economy, and perhaps even in different parts of the world. All these decisions are likely to involve your securing ways to spread the risk of your investments.
Investment may prove a successful way of substantially increasing the capital value of your disposable income, generate for you an attractive and regular income, and protect the value of your savings – or it might achieve none of these things. It is precisely that element of risk that lies at the heart of investing.
The risks may be compounded by the sheer diversity of investment vehicles available and the pressure you may come under as individuals and corporations try to lay claim to any money you have to invest.