Investing is a smart idea to protect your financial future. While any investment comes with inherent risks, understanding how different investments work will help you to decide which risks you are comfortable with and which you can capitalise on.
Building an investment portfolio and growing it takes time. The best thing to do as a new investor is do your research, get sound investment advice, and never allow yourself to be pressured into an investment.
For new investors, the below types of investment could be a good starting point.
Stocks are one of the most widely known and used investment types. When you buy stocks, you are buying a share of a particular company. Therefore, betting on and buying into the success of the company you invest in.
Stocks can be very volatile, depending on the industry and company you invest in. Successful stock investments can pay huge rewards. While unsuccessful ones could incur big losses.
Indexes are a great way to diversify your investments across multiple stocks. Indexes track the fluctuations of the stock market. They will only perform as well as the market does at any given time.
Due to market fluctuations, indexes yield lower returns than other investment types. Although they do yield more interest than bonds and traditional savings accounts.
Some popular stock indexes include the S&P 500, Dow Jones and Nasdaq. These are seen by many investors as a safe haven to make interest on money over time, instead of leaving all monetary assets in bank accounts with low interest rates.
New investors could start futures trading in the UK and make money from fluctuating prices. Futures trading relies on contracts that allow investors to offset or assume risk of a price change of an asset over time.
When you reach the futures date, you will then trade your specific asset with an identical asset. The only variable being the price.
Bonds are one of the safest and lowest risk investment types. Making them ideal for new investors.
Many bonds are backed by governments, so there is less risk of the entity who you loaned the bond to defaulting on the repayment.
Bonds offer lower return rates though, often not keeping up with inflation and reducing your overall spending power when you bond is cashed.
Gold is one of the longest standing types of investment. It is traded as a commodity, which means its price is impacted by political decision, scarcity and market fears.
Investing in gold might be a good idea. Especially in an uncertain economic future.
Cryptocurrencies have boomed in the last few years. They are bought and sold online and include currencies such as Bitcoin and Dogecoin. Cryptocurrencies remain unregulated, so investing in them could be volatile.
Investing in crypto is a big gamble. There is inherent risk as cryptocurrency use is still not widespread.