If you’re considering investing for the first time, it can be daunting. You want to make sure you understand everything and the risks involved, but often the vast amounts of complex jargon can make it difficult.

There are so many options for investment – the kind that’s right for you (if indeed any) will depend on your individual circumstances and relationship with money. It’s always a good idea to speak with a financial advisor before investing, so you can be sure you’re picking the right investment solution for your needs.

For many, investments will form a key part of your financial security in the future. For example, your pension is a type of investment. Selecting the right investment for your circumstances, by considering your attitude to risk, timescales and financial goals, is essential.

To help you on your investment journey, we’ve developed an investment jargon-busting guide, which covers a range of frequently asked questions, the different types of investments, some top tips and a key terminology guide.

Key things to consider:

• What are your goals/what are you looking to achieve through investment?

Whether investment is the right option for you, and, if it is, which kind of investment is right for you, depends on your personal financial goals – eg whether you’re looking to receive a regular income, grow your assets, or both. It’s important to fully understand what it is you’re looking to achieve before setting out.

• The level of risk

Investments often don’t come without some level of risk. It’s important to understand the level of risk you’re prepared and able to undertake when investing, and what this could mean for your financial future.

•  Your budget

How much are you looking to invest? (And can you comfortably afford to invest it?) This will guide your investment planning, as different investment types can be better suited for different budgets.

• How you will diversify your investments

It’s important to consider how you might spread the risk of your investment – ie rather than chasing one big potential return, investing your money into different avenues with multiple, smaller potential returns. That way, if one investment were to fail, you’re less likely to lose everything you have invested.

Investment FAQs

1.    What is investing?

Investing is where you put money into financial schemes, shares, property or a commercial venture, with the expectation of achieving a profit. Essentially, you buy something now, with the intention of selling it on for more money in the future.

2.    What are the different types of investments?

 You can invest in almost anything, but most commonly, investments will fall into one of three categories:

• Shares – where you own a part of a larger company.
• Funds – a pool of money that is professionally managed and invested on your behalf.
• Bonds – where you contribute to a loan made by an investor to a borrower, the loan is then paid back with interest.
  
  

3.    How much risk should I take?

There is no rule of thumb as to how much risk you should take to achieve your financial goals through investing.

Different people have different relationships with risk – and a different understanding of what risk means to them. By speaking with a financial advisor, you can begin to better understand your relationship with risk, ensuring your investment is matched to that.

4.    How long will my investment hold my money? (When can I cash out?)

The length of your investment will depend on your individual circumstances and plans for the future. The length of time you’re able to invest for will also determine the best investment solution for you.

Those able to invest for longer periods of time may be able to secure higher interest rates or returns, however there are other options if your financial goals are shorter-term.

5.    Where should I invest?

Simply, there is no ‘one size fits all’ answer to this question. The right investment for you will depend on your circumstances and financial goals.

6.    Where do I start with investments?

It’s a good idea to start with a no-obligation consultation with a trusted financial advisor. They will take the time to listen to your individual circumstances and make recommendations of the potential options that may help you to achieve your financial goals. 

For any support or advice surrounding investments – or to simply understand your options – get in touch or call 0121 285 8528.

Disclaimer: The value of your investments can go down as well as up, so you could get back less than you invested.

Investment glossary:

Appreciation – this is where your investment rises in value.

Bonds – bonds are essentially a debt instrument, it is the money loaned to a borrower by an investor, which is subject to interest upon repayment. Bonds are relatively common amongst organisations and government agencies, and the returns are determined by the central bank interest rates.

Cash deposits – a cash deposit is often viewed as the safest investment asset, as you are aware of the exact rate of interest that will be earned from the savings. However, returns from this type of investment are often much lower.

Depreciation – sometimes, your investment will fall in value. This is called depreciation.

Dividends – these are payments issued to investors, typically between 1-2 times each financial year.

Exchange-traded funds (ETFs) – these are similar to mutual funds (below); however, they are traded throughout the day (as opposed to at the end of the trading day), meaning their value fluctuates. ETFs are often a popular option for experienced investors.

Index funds – these are a kind of mutual fund (below), where stocks are combined to assess performance, giving investors a clear picture of how a portion of the market is performing.

Interest payments – this is the additional percentage added onto loans as a fee for borrowing.

Mutual funds – this is a type of investment where more than one investor pools their money together to purchase securities. These funds are managed by portfolio managers, who distribute the pools into stocks, bonds and other investment assets.  

Property investment – investing in properties to rent is a hands-on investment, which can take a lot of time to manage if you don’t have a property manager. Depending on certain circumstances, including the value of the mortgage on the property, investing in buy to let properties can be extremely profitable.

Shares – a share is a percentage of a company owned, which can vary in size. The value of shares will often grow and depreciate in line with the company’s performance. Depending on the company commitments, company investors can also be paid dividends from the shares they own.

Stocks – a stock is all of the shares that make up the ownership of a company. There are two main types of stock: common and preferred. Holders of preferred stocks receive priority dividends, but do not have voting rights. Whereas common stockholders receive voting rights, but will be less of a priority for dividend payments.

 

If you would like any individual advice, or to talk through your investment options, please get in touch with a member of our team, or call 0121 285 8528.

 

Image Sources:

https://unsplash.com/photos/SoT4-mZhyhE

https://unsplash.com/photos/DfjJMVhwH_8