Investing involves setting cash aside to grow in ‘real terms’. This means your money grows at a faster rate than that at which inflation rises (the rising costs of goods and services). This means, eventually, you’re better off financially compared to pre-investment. While investing could be risky under certain circumstances, good investing isn’t about gambling, there’s a difference between financial planning and get-rich-quick schemes. For this, you need to consider: where is good to invest money? The greater the potential short-term rewards seem to be, the greater the risk of losing your investment.
It’s important to consider the total return you get from your investment when assessing where is good to invest money. Some types of investments offer you income, others offer capital gains (profits when you sell your investment) – ideally, both would be good. And don’t forget there are usually costs associated with holding a certain investment, whether they are broker fees, maintenance work or storage. Then there are taxes to pay and inflation to account for before you realise your actual return.
Where is good to invest money?
Putting cash in the bank
Seemingly a safe option, as you know exactly what you’ve got, but cash itself isn’t a great investment – especially given the low rates of interest paid by banks and building societies. Interest rates are rarely higher than inflation, which means your money is actually losing value all the time.
If you have zero inclination towards risk or are deliberating a longer-term plan, by all means, put it in a savings account (opt for a tax-free cash ISA) to gain some interest. Fixing for three or five years will give you the highest interest rates, but do keep in mind that you won’t be able to access it for the period, plus you could lose out if interest rates improve.
Whatever you do, just don’t keep your cash at home. Thanks to inflation, you’ll be losing the most money there.
Invest in antiques, art, wines and collectables
Collectables can be quite cheap, so they can be a good option when considering where is good to invest money. They are an affordable form of investment for those on limited means and you can learn as you go along. But if you think it’s an easy path to riches, you should remind yourself that get-rich-quick offers come with a higher level of risk.
Investing in collectables brings in no immediate income and depends entirely on someone paying you more than the price at which you bought the item for. There’s also the added provision that fashions come and go, so what is highly desirable today may be passé next year.
You need to be an expert in whatever it is you’re collecting, otherwise you’ll be taken for a ride by those who know what they’re doing. Buying and selling online is typically cheaper than using old-fashioned auction houses and gives you a much wider global marketplace.
A good starter strategy is to source desirable items where there are fewer target buyers (such as online classifieds website Gumtree or a car boot sale) and sell them where the demand is highest (such as online auctioneering giant eBay or a club).
Beware of getting attached with the items you collect – that turns the exercise into an expensive hobby rather than an investment.
Putting your money into property
When weighing your options for where is good to invest money, the best single investment for most people – and the one that you should make as soon as your income allows it – is to buy your own home.
Historically the value of property rises faster than inflation and one day you will clear the mortgage. Rents rise year by year and you will always need somewhere to live. Therefore, not surprisingly, property continues to attract investors as ever before.
Once you’re on the property ladder you can climb up to more expensive properties as you gain more experience and your income improves. As an investor, you can go one step further with buy-to-let, owning property that produces income as well as increases in value over time.
The big disadvantages of property investments are that you need to commit large amounts of money to each investment, and it can be time-consuming keeping an eye on the property and the tenants. Make sure you set aside some money to cover hefty maintenance bills (which crop up whether you can afford them or not).
Bonds
Governments and companies borrow money and issue IOUs. Those issued by the UK government are known as gilts because the certificates used to have gold leaf around the edges to reassure investors how safe they were, making them a good option when considering where is good to invest your money. You can purchase gilts (directly or as part of a fund) as well as equities through a broker.
They carry a guaranteed interest rate and – usually – a date on which they will be redeemed, with the borrower buying them back at full price, which is known as the nominal or par value.
The yield on the bonds (the amount of interest you get each year for every £100 invested) will reflect how safe or risky the investment is seen to be by investors. The safer the debt (the less likely the borrower is to renege on its debts), the lower the yield.
Bonds issued by governments are known as sovereign debt and are generally regarded as safer than company debt because governments are less likely to go bust than companies. This means they are a lower risk option when considering where to invest.
Unlike fixed-term savings accounts, you can sell your bonds at any time, but the complication with bonds is that you don’t pay 100p in the pound to buy them. They trade at the market value: the price that investors are willing to pay.
At times of low-interest rates, the price of bonds will rise, thus reducing the annual amount you receive for each £100 you invest. When interest rates rise, the market value of bonds falls.