It is often iterated by money managers that never let your savings sit idle as cash, make them work while you are also working. Your savings will work towards fetching returns and thus maximising your wealth. You can invest your money in any asset class, depending on your risk appetite.
In this blog, we will explain some of the famous asset classes, including high-risk investments, along with their expected returns based on historical returns. The UK is a big financial hub apart from being one of the top five economies of the world, and thus, fortunately, there is no dearth of investment avenues for an investor.
But before we delve deeper into these asset classes, let’s first get to comprehend why one needs to invest his savings? What are the benefits you will get by stay invested? Why can’t you practice hand to mouth approach?
Need For Investing?
The following points mentioned below highlights the importance of investing your money in the long run.
- Retirement Fund: What will you do after you retire from your present job or stop doing business after a certain age? The savings you have invested all your life will act as a retirement fund for you to finance your spending when you are not earning.
- Beat Inflation: Money is sitting idle as cash is losing its value over time as there is inflation. Thus, it is losing its purchasing power, and you will be able to buy less quantity going forward with the same amount of money.
- Compound Interest: The Great Albert Einstein once termed Compound Interest as the Eighth Wonder Of the World. This is because compounding works wonders on your investment in the long run by multiplying it. The only pre-requisite for that to happen is to keep investing every month and stay invested for the long term.
- Meet Future Goals: We all have dreams of buying a house when we’re 40 or getting our dream car or children’s higher studies. The small savings you are investing every month will multiply in the long run to finance your dream car or your dream house.
- Unforeseen Circumstance: There can be unwanted situations like losing your job or any medical emergency that demands huge money. Now, if you have money invested, you can use that easily to sail through any emergency.
You are in a better position to understand why to invest? Now, let’s get to know how to invest money in the UK?
All Set To Start Your Investing Journey? Here Are The Options For Investing
There are many different asset classes where you can park your savings to see it growing. However, before investing your money anywhere, there are two factors should be given proper thought. These factors are Time Horizon and Risk Appetite; these factors are crucial in deciding the right asset class for yourself.
If your investment’s time horizon is lower, then go for liquid funds, fixed deposits, short term treasury bills, debentures. If the horizon is higher, then go for SIP in mutual funds, equity investing, real estate, gold etc. Likewise, if your risk-taking ability is low prefer fixed deposits, government securities, or risk-takers, then go for equity, options trading and forex trading.
- Term Deposits:
These deposits are with a bank, and they carry a fixed tenor, these term deposits are fixed deposit and recurring deposits. The former involves a one-time deposit that grows over the period, and the latter involves regular monthly payments during its tenor. It is one of the safest investments as banks are not going anywhere, and the interest rates do not fluctuate like stock prices.
Since the risk is comparatively lower, the returns are also lower but safer. It is an ideal investment idea for you if your risk-taking capability is low. If you want to withdraw your savings at regular intervals, then go for a savings bank account with a bank offering the best interest rates on a savings account.
- Fixed Income Instruments:
Then comes the fixed income asset class, which consists of corporate bonds, treasury bills, debentures, government securities, commercial papers, etc. These bonds offer a fixed return regularly (monthly, yearly) as coupon payments. The amount invested is returned at maturity. The risk here is low to moderate, and the returns are also moderate. But, if you invest in Government bonds, then it is the safest investment out of all the asset classes as the government will not default on coupon payments.
- Peer-To-Peer Lending:
This falls in the category of high-risk investments, you can become a direct lender and lend to small businesses or unemployed people via a lending platform. This asset class is currently booming in the UK landscape as many direct lenders are coming forward to lend and earn interest on these loans. However, a word of caution here can be a risky affair if the borrower defaults but online platforms do checks on the borrowers. You can diversify your risk here by lending to multiple borrowers. Check for the success rate in lending before collaborating with a lending platform.
- Commodities Trading:
Commodities trading involves buying low and selling high listed commodities like rubber, crude oil, natural gas, copper, silver, coffee, corn, iron ore etc. The returns here are good, but the risk can be higher if you do not regularly track them. Thus, if you do not have prior knowledge and cannot track these commodities, stay away from this asset class.
- Real Estate:
This falls under the category of physical investment in which you buy a piece of land or any residential/commercial property in anticipation that its prices will appreciate in the future. Your investment would double or treble in no time if you chose the right locality while buying. Do your research about different areas in the UK that can offer lucrative real estate opportunities. The risk here is moderately low, and the returns are moderate too, in the long run.
An ornament to enhance the beauty of women, it is also a great investment opportunity. You can buy gold in physical form when its prices are low and wait for prices to shoot upwards to make profits. You can buy gold in digital form as well to earn returns. These digital forms are sovereign gold bonds, gold bees, gold ETFs, gold futures or gold mutual funds.
- Mutual Funds:
If you want to see the compounding effect working on your investment, then go for mutual funds. You give your money to professional fund managers who will invest in companies and generate returns for you.
Compounding works when you choose the SIP route for investing rather than lump sum investment and stay invested for the long term. In the SIP route, you buy some mutual funds units every month based on the prevailing net asset value (NAV). The risk here is lower than individual equity investment, and the returns are higher in the long run.
- Equity Investment& Derivatives Trading:
Equity investments and trading involve buying shares of companies and then selling them when their share prices go higher. Your holding period defines whether you are an investor or trader; the former involves long term wealth creation while the latter is for short term gains.
Thr equity segment is risky if you don’t have the required knowledge or are emotional and impatient. The returns here are extremely higher if you choose the right stock, and the risk also is higher.
Derivatives containing Futures & Options are for short term trading to make quick money. But they are much riskier than the equity segment as they have an expiry, unlike shares. So, enter this space, only when you are sure else, invest in equity.
- Currency Trading:
The riskiest investment idea wherein is that you can quadruple your savings in a few minutes or lose everything in seconds. This trading in forex requires practice, experience ,and prior knowledge. The currency market is open at all times of the week.
Description: This blog was written to enhance people’s awareness who wanted to park their surplus funds into an investment opportunity.