Have you thought about investing but have no idea where to start? This post investigates 7 investments for beginners.
7 Investments for Beginners
As you know, this blog is all about sharing ways to save money and make money. Investing is a funny one. It scares me a little, as any money you invest could be at risk and I find this uncomfortable. However, some investments can give you a much higher return than the traditional interest on your savings.
I decided to do a little research. There is lots of information out there and I came across many companies like Highland Capital Management, for example. The list of different methods of investment is mind blowing and, to be honest, I don’t really understand any of them. That doesn’t mean I should dismiss investing though. Let’s face it, even James Dondoro, the CEO, had to start somewhere.
Investments for Beginners
In this blog post, I am sharing some different methods of investing which are available for those who are ready to have a go but only wish to risk smaller amounts of money.
Please note, that all of the methods below are not risk free. You can receive back a lower amount of money than you invest. Do not invest money that you cannot afford to lose.
Stocks and Shares ISA
Everything you read about beginning investing advises you to start with a Stocks and Shares ISA (remember you can lose money with a stocks and shares ISA). The main benefit of this type of investment is that are returns are tax free. You can invest up to £20,000 per year.
You can access your money at any time.
This type of investment is good for those who have small or large sums to invest.
Peer to Peer Lending
Using a third party company like Zopa, Ratesetter or Funding Circle, you can choose to ‘lend’ money. The third party company will match the amount you wish to ‘lend’ with someone who wants to borrow that amount.
You may not be able to access the money you have ‘lent’ until the end of the loan term, although some companies allow you to withdraw the monthly repayments paid back by the borrowers.
This type of investment is good for those who wish to start with smaller amounts of money.
Employers Share Scheme
Some employers may offer this through a Save as you Earn Scheme. The money to be invested is taking at source, ie before it gets paid into your bank account. The schemes backed by the Government (including SAYE) also give tax and national insurance relief on any money invested this way.
One of the easier ways to invest in shares as all the decision making is done for you.
Good for smaller investment amounts.
If you choose to invest in shares, the cheapest way to do so is by execution only. This means that you make your own decisions and choices on which companies to invest in. Again, there is risk as investments can go up and down.
If you make the right choices there are two ways you can make money on shares – dividends (like interest on your savings) or profit if you sell your shares for a higher price than you bought them. If you decided to sell your shares you will need to use a company so there may be fees involved at this stage.
These are shares but you give a lump sum of money to a company who decides where to invest it for you. You can make money via dividends or profit on selling, as with Shares above. However, there are higher fees involved with funds, so these are best for those with more money available for investment.
These require larger initial sums invested and generally your money will be tied up for at least 5 years. They incur fees. If you wish to release your money before the end of the term you may also be charged a surrender penalty.
These are often referred to as Gilts. Your money is often tied up but there are different maturity lengths available. Some money can be invested short term and so can be seen as a little less risky. You would buy gilts from a stockbroker, who would charge fees, or direct from the UK Debt Management Office.
Money Made on Investments
Income of £1000 or less received via investments is tax free in the UK, as each person has a £1000 Personal Savings Allowance. Any income over this amount would be subject to tax and you would need to submit a tax return each year.
Seek Professional Financial Advice
Before parting with your hard earned money, it is always wise to seek independent financial advice.
There are many different ways to invest and you can choose how much money to risk and how long to tie your money up for.
It is recommended that you don’t put all your eggs in one basket but perhaps spread your investments across a number of different methods.
Remember there are no guarantees and your money may be at risk. However, it is because of the risk involved that investments attract a higher rate of return.
Why not pin this for later?