You can earn more from your money if you invest it if the goal you have set for your saving is in 5 years’ time.
Understanding investments
Investment is putting your money into a certain venture so as to make a profit. There are four main categories of investment that one can choose from. They include shares, where you become a stakeholder in a company, real estate which can be residential or commercial, bonds which are also referred to as fixed interest securities where you lend your money to the government or a company and cash which is money kept in your bank account or a savings corporation.
Other types of investment can include options like foreign currency, commodities like oil, gold, coffee, art & antiques or betting on shares that will either gain or lose value.
A portfolio is the collection of all investments owned by an individual.
You lower the risk of your entire portfolio by diversifying where you put your money.
Returns
When you have a bank account that allows you to access and withdraw all your money when you need it, it is called secure investment. If you put the same money in bonds, shares or real estate, the value will fluctuate but in the long run, it will appreciate in value, even though each category gains different amounts.
The profits or interest you earn from investing your money is known as returns.
The returns are paid out in various ways, depending on where you have invested. You get dividends from shares, rent from real estate, interest from bonds and cash deposits.
Capital gains or capital a loss is the difference between how much you bought and how much you sell.
How investment returns are affected by fees
It takes time and money to make investments and therefore service providers usually charge a fee for rendering their services. The fee is normally deducted from your return on investment and you should find out more before you commit.
Risks
Truth be told, there is nothing like a risk-free investment. There is always some risk involved with any kind of investment even though the amount varies depending on the nature of investment.
The risk of putting money in savings account is losing value overtime, such that is has no much buying power. The main reason for this is because the interest rate is not directly proportional to inflation.
At the same time, any investment that is index-linked that moves the same as the rate of inflation will not necessarily reflect on the interest rates in the current market. This is to say that your returns will be less if the inflation falls.
Over a good period of time, it is possible to beat interest rates and inflation with stock market investments but the risk involved is low priced stocks at the time of sale. The result is a low margin of return or even potential loss of money, if the stocks are currently lower than you initially bought them.
When is the best time to invest for the first time?
Depending on the amount of money you have as cash savings in your account, for instance if you have sufficient to live on for the next six months, and you would like to increase its value, then investing part of this money would be a good idea.
The ideal investment option for you is based on how much you are willing to take risks and your present and future financial objectives.
