Being financially free is the goal of any kind of financial planning and financial freedom refers to a financial state where you have enough money to survive without working or you have either accomplished your financial goals. Now to grow wealth or achieve your financial goals you need to make some investments which must give you expected results as per your goals. With right information and effective implementation anyone can get desired outputs from their investments.
Before going further into the various aspects of investing let us understand what basically is the meaning of investment. The word investment simply means act of putting time, money or any asset into use with an expected growth or advantage in future. Now if we apply logical thinking to the process of investment some fundamental questions must be asked to be sure that we are making the right call for investment. These questions are just simply common question that anyone would ask if we are investing their money for an example what is the risk involved, what is the expected return, how the funds would be diversified, for what time the amount should be invested in order to get the expected return.
Understanding the Basic aspects of Investing:
Risk and Return: Every investment is associated with some kind of risk associated with it if there is reward expected out of it. Let us take an example of a tech company which has recently launched its IPO and is looking very promising, there is definitely a huge reward expected out of it but if you look carefully there is a risk associated with this investment as the company or even the technology can completely go south in near future. So, the more promising an investment sound greater are the chances of losing money as well.
Diversification: In the investment domain going all in on one stock or on one investment in terms of funds is actually considered as risky and immature behaviour. The expression never put your eggs in one basket is taken really seriously in investing. Wise investors prefer to diversify their capital into different investments like real estate, stocks, bonds etc. in order to give themselves a cushion against the loss in any particular investment. In simple words diversifying your investment acts as a loss mitigating mechanism for your portfolio.
Time Horizon: It is simply the amount of time for which the investment is hold before the funds are accessed as per the desired output. No one can deny the role of timing in investment any individual interested in investment just want to know when to invest in a business and when to exit with the profit.
Key Investment Options for UK Investors:
Stocks and Shares: Someone has to be really living under a rock if they have not heard about the investment option of shares and shares. In context of United Kingdom London Stock Exchange is the place where the real magic happens in terms of trading of stocks and shares. Stocks in very layman terms represents the ownership in shares in Publicly traded company. Without any doubt you can say that there is a lot of potential of growth if investor is strategic and systematic. However, there is also a relatedly higher risk for this mode of investment.
Bonds: Corporations use bonds which are basically the debt securities issued by government to raise money for themselves. In United Kingdom these bonds are called gilts and these are available for the investors. Bonds are usually a safer investment option for people who do not have a greater risk capacity.
Property: If something is limited and is of prime utility for people its value is bound to increase in future and one such resource is land or property. We all know that population is increasing and with increase the demand of real estate in growing faster than ever. Real estate will always be a great area for investment whether it is commercial or residential. People make real estate investments mainly for two reasons first being to generate a passive income source by renting the property and secondly to get the gains in the future by selling of the property. In United Kingdom investors can invest in the residential or commercial property directly by purchasing the property or indirectly by getting real estate investment trust or property funds.
Cash and Cash Equivalents: These are simply the investments where you put your cash and get increment on the principal invested, these provide better safety and liquidity but the returns are typically low as compared to other investments like shares, stocks etc. Savings accounts, money market funds and government bonds for the short term are example of cash equivalents. These investments can be considered as slow and steady investment options best suited for people with low-risk appetite and larger time frames to let the investment grow.
Mutual Funds and Exchange-Traded Funds (ETFs): If you are someone who is not from the finance background and want to create an excellent portfolio which has various asset classes and is diverse as well to reduce the risk of market fluctuations mutual funds is the best choice for you. Many banks and financial institutions have teams of seasoned professionals dedicated to one goal make your investments grow with minimum risk. This is the best investment instrument for people who want experts to take care of their investments.
Essential Tips for UK Investors:
Set Clear Investment Goals: Your investment goals must be clearly defined in terms of objective, time horizon and risk level before you even decide to make any investment. You simply need to ask yourself how much you want out of the investment, in how much time and how much of your investment you are willing to risk for the goal. People have goals like retirement savings, creating a certain amount of money, education, marriage etc. Clarity is the first requirement that will enable you create an investment plan for you.
Diversify Your Portfolio: Never put all your eggs in one basket when it comes to investment which means that you must spread your investment in various assets, industries and geographic areas to minimize the risk and maximize returns. Diversification minimizes the risk of market volatility and specific investment loss risk.
Start Investing Early and Regularly: Ever heard the expression early bird catches the worm it applies perfectly in investing. If you start investing early in your life you will be able to take the maximum advantage of compounding to maximize your returns as you are investing for a longer time as compared to others. So, the mantra here is start early and be consistent in your investments.
Educate Yourself: Everyone must have a basic level of financial knowledge in order to live their well financially. We all are working for money and it would be extremely beneficial if we understand money. In case of investing everyone should be updated with the latest developments and current market dynamics around them. An intelligent investor is more likely to make money as compared to someone who doesn’t have a clue what he is doing. Investing time in learning about investment options, strategies and market dynamics really pays off. Resources like books, online courses, websites, blogs can help you in transforming yourself in to an informed investor.
Seek Professional Advice When Needed: Taking professional help for the financial decisions really pays a lot consider a scenario that there is new organization which is working on an emerging technology and you do not know about it. Just thing of the potential loss if you invest without asking a professional in some company or shares which will rise slowly other than this new firm working on new tech. Taking advice from people in finance domain really pays in making investing decisions.
Investing is long term endeavour which requires patience, discipline and a mindset to learn forever. By knowing the ways to invest, where to invest and when to exit your investments anyone can make their financial dreams come true. All it takes is a learning attitude, perseverance and dedication towards your goals to make it big.
