Investments are a way to help you increase your wealth and build a strong financial future.
At its core, investing is simply putting your money into something that has the potential to provide a financial return over time.
When you invest, you buy assets that you expect to increase in value. The return on your investment can either be in the form of dividends, otherwise known as income payments, or capital gains.
Unlike certain types of savings accounts, your money is not locked away, and you can access it at any time. However, investing is a long-term strategy for building wealth. Despite this, investors now seem more eager than ever to sell their shares. On average, investors hold on to shares for 0.8 years compared to 9.7 years in 1980.
So, how long should you hold on to your investments? Industry experts still suggest at least five years for investors to see the best growth.
You can invest capital in almost anything. However, the four main asset classes include:
Stocks
Commodities
Bonds
Real estate
What are the different types of investments?
The type of investment you choose will depend on several factors, such as how much risk you are comfortable with and your goals.
The two main options for investors are funds and individual shares.
Shares
Shares are what come to mind when most people think about investing. Think of shares as buying a small piece of a company.
The company’s performance and other factors determine the overall value of the share price. The better the company performs, the more your investment is worth.
The bad news is if the company does not do too well, the value of your investments could go down.
Funds
Funds are ready-made investments. The types of investments included will differ between funds, but typically, they will consist of a mix of assets.
Although funds do not give you the same level of control as picking individual investments, they will be better suited to some clients as they can save them time, hence the term ready-made investments.
Another benefit of investing in a fund is that they allow you to spread your money across various investments. This is known as diversification, and it’s a strategy that can help spread the investment risk. This is one of the most attractive features of a ready-made investment.
On the topic of risk, funds allow you to pick one based on the amount of risk you are willing to take.
For example, you may wish to go with high-risk investments that offer higher returns as you have time to make up for losses while you are younger. As you get older, you could move to a lower risk fund that is more weighted towards bonds.
Funds typically fall into one of two categories: active or passive.
Active funds
These are run by fund managers. Their job is to try and outperform the market and generate the best return for their clients. Because there is a fund manager, fees tend to be higher than passive funds.
Passive funds
These types of funds aim to track and match financial markets. While the returns may be lower than active funds, fees are typically lower because there is no fund manager.
How do you make money from investments?
Regardless of the type of investment, there are two main ways people make money investing: dividends payments and stock appreciation.
With dividends payments, the company will pay its shareholders based on the company’s performance.
Stock appreciation is when the value of the share increases over time. When you sell your shares, you receive the value of those shares when they are sold.
Some people opt to buy and sell shares regularly to accumulate wealth incrementally. However, this can often be a high-risk option due to the volatility and daily fluctuations found on the stock market.
Generally, people prefer to use their stocks and shares for long-term investments, as the value of many companies grows over time based on their performance.
To discuss you and your family's financial requirements, contact me, I will be happy to assist with whatever questions you may have.
Rob
E:robert.gourlay@holbornassets.com T:(+6)01151565649 W:www.rgwealthsolutions.com
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