Investment Introduction

The key difference between investing and saving, is that with investments, the value of your investment may go down as well as up. So what’s the point in risking that, you may ask. The point is, that the value of your investment can go up way more than the 5% you might earn in a savings account. Warren Buffet, the worlds most famous investor, is currently worth about $40billion!

Now that I hope you are sitting up and paying attention, lets look at getting started with investing. Why should you invest? Well, you obviously don’t have too, but if you would like to see your assets grow by large amounts, you are not going to achieve this with a savings account. There are indeed risks with investing, but if you manage the risk, you can greatly reduce the change of you losing out.

The first method of reducing risk is to only invest money that you won’t need for a long time. If you suddenly need the money from the investment, and the value of it is currently down, you have no choice but to take the hit of losing money. But if you are happy leaving the money in the investment, you can afford to wait for the value of it to grow again to a positive return before taking out the money.

To reduce risk further, you can look to diversify you portfolio as widely as possible – investing in a FTSE 100 index tracker is much less risky than putting all your money into a small start-up company. By reducing the risk by diversifying though, you are reducing the potential growth of your investment – an index tracker will very rarely double in value in a year, but if you invest in a select few shares, you could see your investment grow in value rapidly.

So what are the main options in the mind boggling field of investing? The main options available to you are listed below:

Individual shares: This is one of the more risky routes, unless you diversify widely. Investing in individual shares of your own choice can yield high returns, but you expose yourself to heavy loses. You invest your money in shares in a single company and the ups and downs in the share’s value can be a heart stopping ride.

Unit & Investment Trust: These are products that comprise of a varied selection of shares. You pay in a certain amount, then that money is spread over a particular selection of shares. With a unit trust, the money you pay in goes towards buying more shares in the selection of companies. With an investment trust, you actually buy shares in a company that own shares in other companies. Though these are a good way to reduce the risk, you do have to pay for the ‘man in the middle’.

Property: Another option is investing in property. This would normally require a greater initial commitment than the other options, but with the recent growth in property prices, its not hard to see why it remains a popular option.

Pensions: If the reason for you investing is to plan for retirement, then a pension may be an option to go for. Though you benefit from a tax break for using a pension, the problem with pensions is that you cant get at the money you have invested until you retire.

Others: There are a number of other more specific options for investment, including bonds and other items such as art, antiques and particular cars. If you are knowledgeable on a particular topic, these may be worth looking in to.

A good reason to invest in the stock market is too take advantage of the tax relief you get each year with an ISA. Its always good to earn some money and not have the tax man get his hands on it before you even get it.

If this introduction has tempted you into the field of investing, take a look at our other guides to find out more.