Should you invest your money? Whether you’re looking to put away some money for the future, or make some money on top of your short term savings investment is likely to be an option you consider.
What does investing your money mean?
Investing means committing your money to something, with the hope that you will receive profit on the commitment in the future.
Before investing your money, it’s important to establish your reasons for doing so. People choose to invest their money for a variety of reasons.
You may be looking to make some investments for your loved ones, for example starting up a college fund for the children. You might be considering investments for your own benefit such as growing some money for financial stability during your retirement.
Regardless of your reason, Investing can be very beneficial and a great way to make your money grow.
When committing your money to an investment it’s important to remember that just because you’re investing your money, does not guarantee you will make a profit. You should consider investments to be a gamble. As great as making profit would be you must be prepared to make a loss on any investment that you make.
A profitable investment will generate what’s called an investment income. This sounds great right? After all if you work hard in a day job. Earning something on the side of your regular income would be a huge help. Should you invest your money? This is a broad question, which we aim to answer for you within this article.
Types of Investment
Firstly we will consider the kinds of investments that you can make with your money.
Stocks and Shares
If you choose to invest in stocks and shares you’re investing in a company. Quite literally, after buying stocks in a company you own a part of that organisation. Whether you make a profit or loss on this investment depends on how the market values that companies stocks.
For example, if the company falls into a financial crisis their stocks will become less in demand. Subsequently, this will drive the value of stocks and shares down. On the flipside, if they record a large of profit then the prices of stocks and shares may be driven up. More people will want to invest meaning you’ll make a profit.
This involves lending money to an organisation. The profitability of this investment comes from periodic interest payments paid to you, by the lending company. So when the bond matures, you investor will receive the face value of the loan, and any interest payments made during the interim.
As with other investments the value of a bond can rise and fall. This value fluctuation depends heavily on the direction of current interest rates.
Another option is investing in property such as making a buy to let investment. This involves purchasing a property, either with your own money or the funding help of a bank. Income with this method is derived from either weekly or monthly fees, charged to the dweller for living within your property.
This type of investment is slightly more time consuming. This is because you’re responsible for the upkeep of the property you let. Also you may run into trouble through disputes, such as tenants refusing to make payment. This can often be a stressful, and expensive process if legal costs are involved.
There are insured deposit accounts that are generally pretty flexible investments. This is because they allow you to make as many deposits as you like. The profit generated from these investments come through interest rates paid to you by the bank.
Where these investments are slightly more flexible, is with withdrawals. Before investing in a savings account it’s important to check what the accounts restrictions are, especially if you may need to withdraw money and don’t want to pay a fee to do so.
It is also important to consider that as the sole source of income for these investments are interest, if the interest rates are currently low then it may make more sense for you to invest in one when the interest rates are slightly higher..
This is a pooled investment fund that offers the investor interest in a professionally managed, range of investments. The shares in this investment method trade in a similar way to stocks.
This means that they can be bought or purchased day by day within a fluctuating price range dependant on variable factors outside the investors control. It is important to remember that despite the professionally managed aspect of this investment, you may still lose out on your money.
Benefits of Investing
Lets look at the reasons to consider investing your money.
Unlike your day job, your investment doesn’t require 40 or 50 hours of your week, even with monitoring profit and loss.
With your day job it’s likely you work to an hourly rate. With investments there’s no limit to how much you can make or how quickly. The more money you make, the more investments you can make and subsequently increase your income rate.
Let your Money do the Work
If you keep your money sat in your safe, it’s not gaining you any money. Investing money in something like a high interest saving account means that while you’re living your day to day life your money is making you money.
Tailored to your Lifestyle
You can withdraw investments or invest further depending on your current situation. Need money to cover vet fees? Take a little money out of your investment bonds. Not sure what to do with a sudden inheritance? Why not invest some of it for the future.
Disadvantages of Investing
Now we consider the reasons you may shy away from investing.
The number one disadvantage of investing is the potential that you will lose your money. We hear the stories about the people who made their fortunes through making investments. Sadly, this is not always the story.
Subject to Change
You can’t rely on investments as a set income stream. This is because if a variable such as the interest rate, or stock value of a company changes then your income from investments will also change.
Start Up Costs
The idea of investing is so that you can make some money on the side. If you don’t have some money on the side already to invest, then it likely wouldn’t be an option for you. This is because investing small amounts is likely to result in small return, and if you can’t really afford it why risk the little money that you do have?
Are you Ready to Start Investing?
Everyone reading this will be at a different point in their life, with different personal circumstances. However, your goals can be categorized to fall within the following:
- Short Terms Goals – this is something you plan on doing between now and the next 3 years.
- Medium Term Goals – this is something you plan on doing between the next 3 and 10 years.
- Long Term Goals – anything further away than 10 years can be considered a long term goal.
Short Term Goals
For the short term goals you’re trying to achieve, it would make most sense to save your money rather than invest it. Whether you’re looking to buy a car, move city or go on the holiday of your dreams. It’s likely that you’ll be able to afford this well within 3 years just by putting money aside into your savings account each month.
Medium Term Goals
This is really dependant on the type of person you are. If you’re slightly more cautious then again, saving would be the best option. An example would be if you’re looking to buy a new property. With a cautious approach and consistent saving you could have saved enough for a deposit on a place within 5 years.
However, if you’re a bit more of a risk taker you might consider investing your money. If you aren’t able to make consistent payments into a saving account, it’s probably worth making some kind of investment.
This is because if your money is just sat there making very slow increments, in few years it may be worth the same as it was when you started. This is because of inflation, in 10 years time you will get less for your dollar. However, if you invest the money and profit then the value of your invested dollars will rise with the inflation rate.
Long Term Goals
So chances are, if you’re thinking about long term goals you might have considered a long term savings account. These often offer interest rates higher than your regular saving accounts. The downfall is that your money tends to be locked into these accounts. Meaning that although you’re receiving what’s considered a high interest rate, your money cant be touched.
This causes problems because if the interest rate is for example 2% and the rate of inflation is 2.5% then by keeping your money in a savings account with a fixed term interest rate of 2% you’re not actually making any profit. This is because your money is losing value due to inflation faster than you’re gaining interest on it.
With long term goals in mind, we would recommend considering making investments. if your prepared to take the risk of investing in stocks and shares then this could be a better option than choosing to put your money in long term savings accounts.
This is because your money has the potential to grow at a higher rate than offered by long term savings accounts. Also if you need to withdraw any of the money you have invested you have the option to. Long term saving accounts often won’t allow withdrawals or charge a fee for doing so. Furthermore, if you are looking to pay yourself an income from the investment then the ability to withdraw some of the money you have committed is vital.
Should you Invest Your Money?
In the current economic climate, it’s more important than ever to be smart with your money. We believe strongly in the importance of saving your money, but also in the power and potential benefits of investing it. As we said previously, whatever you choose to do with your money will depend on circumstances on an individual basis.
Investing is a great way of obtaining another income source. In some scenarios such as some of the ones mentioned in this article, due to inflation investing can be a much better decision than saving your money.
Although, you need to be careful. If this is the first time you’re considering investing then make sure you’ve done your research. Furthermore, we can not stress enough the importance of remembering that making an investment is a gamble. If you are not prepared to lose the money you put in, maybe you should be making the investment.
Remember, there’s no need to rush. Don’t be quick to give your money up for investments labelled “the next big thing”. Take a well thought out and calculated approach when considering the options for your existing finances.
We strongly advise that if you don’t have enough money put aside to cover at least 3 months living costs, then saving your money is a much smarter option than investing it. This is down to the fact that if you lose the money that you invest, and have no fallback savings then you’re at the risk of falling into financial crisis.
After all, investing your money is supposed to create another income source for you. If you find that by investing you’re damaging an existing income stream, it’s probably not time to invest.
Whatever you choose to do with your money, we hope that this article has offered some insight into the potential benefits of investing your hard earned cash.
If you found this article helpful, or have any further advice for people who might be reading let us know in the comments below!