One way to think about investing is – it’s all about making sure your money works for you and makes you more money in the future. Even though the idea of investing itself is straight-forward, the process to turning this idea into reality often requires hard work and careful consideration.
What is an Investment?
Simply put - anything that you buy with the plan of generating a profit in the future can be considered an investment. Most investments fall into one of four large categories of assets:
This term refers to any actual money you hold in any form. It can be funds in a savings account, money in a gift card or PayPal, electronic currencies such as Bitcoin, or actual cash held by you or stored in a safe place at home or work.
The advantage of cash is its’ liquidity – i.e. money you have access to can spend right now. The disadvantage to cash is that its value can be destroyed over time by inflation. That is why most people keep their cash in interest-earning savings accounts.
- Fixed Interest Securities or Bonds
A bond is actually a loan you make to a company or a government. Some bonds, such as government bonds, are traditionally considered very safe. Other bonds, like corporate bonds, are considered riskier as they are not government guaranteed.
The advantage to bonds as a financial investment is that they provide a constant return. The disadvantage is that the return can be very low and the risk is dependant on the risk rating of the entity that issues the bond.
- Equities, Shares and Stocks
Speaking generally, an equity, share or stock, is a share of a company that you purchase as an investment. These investments can make you money in one of two ways:
- By receiving a dividend on the share each year, and/or
- By appreciating in value (that you can sell for a profit).Similarly the share price can decrease in value.
Equities, shares and stocks can be purchased directly through a broker. You should note that there is no guaranteed return from shares.
Property can take the form of a house, a rental property, empty land or a building for your business. The major advantage to property is that it has a higher use value than other financial investments – i.e. you can actually live in your property investment if in fact it is your home. Over the years real estate has been considered a safe investment but again that is dependent upon the time that you entered the market and in particular the housing price cycle at that time.
With property investment you have the cost of maintenance and you need to be aware that not only can property appreciate, it can also depreciate.
Just keep in mind - there are many other types of investments out there, including:
- Collectibles eg cars or comic books
- Foreign currency
- Commodities and precious metals like gold:
- And many other complex investments
All investments are impacted by two basic concepts. Return and Risk.
We strongly recommend that you discuss your investment strategies with a financial planner and in this regard we can refer you Bridges Financial Services for an appointment with a financial planner
Your Return on Investment
Your ‘return’ is the profit that you acheive from the investments that you make. This return can take many forms - interest, dividends, rent or the cash you can make by selling the asset.
An investment is positive when the return (or profit) exceeds the money that you put in. With any investment,you want to maximise your return while minimising the risk.
Your investment ‘risk’ is the money that you may lose in an investment. A key decision with any investment is for you to agree the level of risk if any that you are willing to accept. The level of risk is the potential loss you are willing to take in the investment.
All investments carry risks, but some are riskier than others. That is why we strongly recommend that you discuss your investment strategies with a financial planner and in this regard we can refer you Bridges Financial Services for an appointment with a financial planner
This article provides general information only and should not be relied upon as financial product advice.