When thinking about a good way to invest money, there are a number of options to choose from. Choosing the best investment depends on your investment goals – whether you are saving for the short term, planning to invest for a couple of years, or saving for the long term. So, what moves should investors consider taking in 2021? One idea is to have a mix of various investments as having a combination of various investments allows you to diversify your investments and mitigate risks.
How do you find an investment that is right for you?
With so much choice available to investors, it is a good idea to think carefully about how you want your money to work harder for you. Choosing a good way to invest money is reliant on how much you have to invest, what your investment goals are, and how much risk you are willing to take with your money. You might also be interested in selling or switching your current investments in order to make more money or buy into green or sustainable investments.
Here is a plan to find a good way to invest money in 202
- Finding the best investment – how much should you invest?
When you are looking for the best investment, it is necessary to have an overview of all your personal finances. You should consider whether you have any debt that would be better to be paid off before you start investing.
The amount you are paying in interest on a personal loan, credit card debt, or overdraft may be far more than you could get from a savings account right now. Because of this, it could be better to clear your debts before you start saving. Don’t forget to check any terms and conditions of your credit agreement so that you don’t pay any penalties for paying off your loan before the stipulated time.
Next, check whether you have an emergency fund that can be accessed quickly and without penalties for withdrawal. Ideally, you should have six months’ worth of household expenses saved up so that if you need money quickly – for example, if you were to lose your job – you wouldn’t have to rely on a loan or expensive credit agreement.
Once you have your finances in order, you will have a clearer idea of how much you would be able to invest – in other words, which part of your disposable income you want to set aside for saving and investing.
- For how long do you want to invest money?
When you’re choosing a good way to invest money, including where to invest your money and what to invest in, you need to decide when or how soon you will need access to it.
Are you prepared to tuck it away for a few years, or do you think you might need to access your savings in a couple of months? This will have a large impact on your decision.
Think about the money you want to invest:
- Are you looking to invest a lump sum, or to set aside a regular monthly amount?
- Will the investment be for the short-term or longer?
- How much money do you have available and will you be able to add to it?
- How much risk are you willing to take with it?
Some investments also have a minimum financial commitment, so knowing what you can afford and whether you plan to make a one-off or an ongoing saving could be a good starting point.
If you are going to need money within a couple of years, then the best place for your money is an easy access savings account, or a simple deposit account. While you won’t get the highest returns, this is a good way to invest money in the short term.
Regular savings accounts are also an option as they usually pay slightly better rates than instant access accounts. However, you will need to commit to saving each month, and you may pay a penalty if you make withdrawals before the end of the 12 month period.
Investment options for short term money include funds that you’re saving for a deposit for your home, money that you want to save up for home improvements, savings for a holiday, or any amount of money that you will need over the next couple of years, and which you can’t afford to take any risk with.
If you’re saving and investing money that you are not going to need for three to five years, then you could consider using other types of saving and investment products.
A good way to invest money in the medium-term could include a number of different types of assets. You could invest in fixed-rate bonds, these could be for one to five years, or you could choose deposit accounts for which you have to give notice if you want to withdraw your money.
Bonds are somewhat like savings accounts, in that they are low risk and pay you back your initial investment along with accumulated interest. They may pay you a slightly higher interest rate than a simple savings account, although with interest rates generally so low, the difference will not be big.
You won’t be able to access your money for the fixed-rate period unless you pay a penalty, so this is an option for money that you will not need in a hurry.
Bonds and other fixed investment products run for a fixed period of time, so if you plan to access your capital within a specific timeframe, then some product types won’t be right for you.
Money can also be put in savings products like Cash Individual Savings Accounts (ISAs), which are tax-free wrappers. The money grows without you having to pay any tax on the gains.
The best investment options for longer-term savings are very varied. If you are looking for a good way to invest money for five years or more, which method you choose will depend on a number of factors such as your age, lifestyle, and money priorities.