Putting your money under Investment in the UK could allow you better returns for long term. This way, you would also be able to keep up with rising prices.
What are investments?
You invest to buy something or for a profitable return over a period of time. Investments come under four categories:
- You can build a society account or put the savings in a bank in the form of cash.
- You loan your money to a company or government in the form of bonds or fixed interest securities.
- You can stake in a company by buying shares.
- You can invest in physical property such as a physical building, which can be either commercial or residential in purpose.
Apart from these, investments can be done in other forms such as:
- Investment in a range of commodities like oil, coffee, corn, rubber or gold.
- Foreign currency.
- You can bet on shares gaining or losing value or through contracts for difference.
- Investing in collectibles like toys, art and antiques.
Assets owned by an investor are called a portfolio. As a general rule, spreading your money across portfolios or different types of asset classes helps lower the risk of your overall portfolio.
Returns are what you get from your investments as profit. It is paid through different ways depending on the investment kind and where you put your money:
- Earn interest from cash deposits and fixed interest securities.
- Earn dividends from shares.
- Rental income.
- Capital gains or losses which are the difference between the buying and selling prices.
Role of fees in reducing investment returns
Investments require fees by money and service providers and is a time taking process. This can really affect your earnings.
Although, nobody likes to gamble with savings but the truth is there’s no such thing as a ‘no-risk’ investment. Every investment involves risk, big or small. There is always an element of risk when you are investing.
Money placed in secure deposits such as savings accounts risks losing value in real terms or buying power over time because the interest rate paid may fluctuate and won’t always keep up with rising prices or inflation.
On the other hand, index-linked investments follow the rate of inflation but don’t always follow market interest rates. This means your sum is inflation-dependent and that if inflation falls you could earn less in interest than you expected.
Next, stock market investments, which may beat inflation and interest rates over time but they run the risk that prices may be low at the time you need to sell, resulting in a poor return or even loss if prices are lower than what you bought at.
So, spreading across different products and asset classes or ‘diversifying’ is a good idea for minimizing risk as you would still stand to gain if one or two investments don’t click.
The right savings or investments for you will depend on how comfortable you are taking risks and your current finances and future goals.