If you can’t manage to score some good returns on your savings accounts, it’s time to open up to other opportunities of putting your money to good use. Investing into the stock market can be a lucrative activity, provided that you learn how to take the best decisions. Hopefully, the following tips are going to help you get started.
- Investing isn’t only for wealthy people
The stock market is accessible to everybody. You don’t have to be Warren Buffet in order to be able to invest in stock, as there are many funds that accept monthly deposits as low as £50 or lump sums that don’t exceed £1,000. Nonetheless, you have to be prepared to see your savings fluctuating in value. This type of investment isn’t for the faint at heart.
In addition, you need to be aware that investing is a long-term game, so you shouldn’t imagine you’re going to be able to use your money for at least five or even ten years. This is why stock market investments are more suitable for long-term goals such as your child’s education rather than short-term ones.
- Have patience
Unpredictable markets can drive you crazy, as you can never know what’s going to happen to your money. Nonetheless, statistics show that long term equities are more profitable than cash savings. If you take a look at the interest rates most banks offer for savings accounts, you can easily understand why they aren’t a viable option anymore.
Your average cash Isa would pay you 1.59%, which is lower than the inflation rate of 1.6, this meaning you’re actually losing money instead of scoring a profit.
- Investing offers you some tax benefits
If you invest your money through a stocks and shares Isa, you can benefit from a tax-free allowance of up to £11,880 per year. All you’ll need to pay is going to be a flat 10% rate on dividends, as opposed to the regular 32.5% rate some taxpayers have to bear.
- Have well defined purposes for your investments
Cash is the safest method of saving money. Nobody can take it away from you, so you can safely assume it is one of the least volatile asset classes. Nonetheless, inflation can erode your savings, thus making you lose money in real terms. Some people choose fixed interest investments, as they perceive them as safer than equities as and more profitable than cash.
As a matter of fact, you should know that the risk profile changes, so you might witness capital loss increases that would erode the value of your bonds. Shares or equities offer you a stake in the company. Whenever a company performs well its shares increase, the opposite being also true.
Residential or commercial property can also make a good investment, as well as commodities such as oil or metals.
- Spread the risk
You should never put all your eggs in the same basket. If you invest everything you have into shares in one single company, you’re going to lose it all, should the company tank. This is why you should strive to have a diversified portfolio of investments.
Whenever some markets fall, others tend to rise. If you have investments in multiple companies, markets and asset classes, gains are going to compensate losses. Cautious investors always seek to spread their risk.