Building wealth takes a lot of patience, hard work and a little bit of know how. You do of course need to earn a decent wage, find ways to reduce your costs where you can and set aside a little money each month.
But to make the most of your savings, it also helps if you invest those savings somewhere where they can grow. This is an area where a lot of people fall down, because investing can seam complicated.
So here is a quick guide to a few of the different investment options available to you. You don’t need to have thousands to start investing, and getting into the swing of things now could pay off in the future!
Index Tracking Funds
Perhaps the most common way to invest is in the stock market. But day trading takes a lot of practice and skill (not to mention the costs of making trades). Buying into a long-term fund is an easy way to buy in to the stock market and returns can be reasonable if not astronomical.
And index tracking fund generally just tracks the stockmarket price index. So if the economy grows (and in the long run it generally does) you will make a return – probably more than you would with a normal savings account.
A managed fund is similar to an index tracking fund, except that it consists of a number of investments in different companies as chosen by the fund manager. These funds each have their own risk profile and their make up will depend on the style of fund.
Ultimately the jury is out on whether such funds are worth it, as they also come with a management fee, usually around 2-3%. If you are new to investing, an index tracker if probably a simpler option, but a managed fund is an interesting option if you want to vary your investment strategy.
Peer to Peer Lending
Peer to peer lending is popular at the moment, perhaps because it makes sense and is easy to understand. The idea is that you lend your money to small businesses who need the money and you are paid back with interest.
Doing this manually would be hard work, so sites like Zopa facilitate and aggregate lending, so that you can lend as much or as little as you like and your money can be split into many chunks and lent out to many businesses – this lowers the risk, and because you are cutting out the middle man (the bank) the returns can be very good (Zopa estimate a 5% return currently).
Property investment is easy to understand, but it’s an option that requires some capital and some work. That said, buying your first buy to let property doesn’t have to be as expensive as you might think. If you can release some equity from your own house, or invest some savings, there is no reason why you shouldn’t get a buy to let mortgage and become a landlord.
The best thing about property investment is that you can take a monthly income (rent) and also potentially make capital gains. 2 streams of income does somewhat improve your chances of making a good return!
Finally of course, there is always the option of investing in your own business. This is certainly the highest risk strategy, but there are many ways that you can reduce the risk, and this is also the strategy with the biggest potential upside.
What Is Your Investment Strategy?
Do you use any of these strategies? Do you invest in other ways? If you are not already investing, the best advice is to look into the options and educate yourself. Many of these options can be utilized for just a few pounds per month, so you don’t have to be rich to start.
Just take the time to understand the risks and choose the strategies that suit your needs and goals. Good luck!