If your saving goal is longer term (5+ years) and you have a “emergency fund” in cash, then you may want to consider putting some money into investments, to potentially earn a higher return. I will need to go into more detail in future blog posts, but lets start with the basics.
You can invest into 4 main types of investment - called asset classes.
1. Shares (buying a stake in a company)
2. Fixed interest (or bonds, where you lend your money to a company or government)
3. Property (direct ownership or through a fund)
As a general rule, you should have a diversified portfolio spreading your money across different asset classes, to spread the risk.
Each asset class produces a different return either via an income, growth or both. For example Shares produce dividends & capital growth, where fixed interest investments pay you interest.
Each asset class also has a different level of risk to your capital. There’s no such thing as a risk free investment, but for your capital, some are safer. Cash is safer, as the value won’t fall - but there is the risk that inflation (the cost of living) will rise and therefore your cash will lose spending power. Shares are likely to offer a higher return, but the value of your investment will fluctuate and you risk losing value if you sell if the price of the share is lower than when you bought it.
This is why it is good to have a diversified portfolio, as you can spread the risk over different asset classes. That way if one asset class is doing badly, your others may be still doing well.
The most suitable investment for you will differ depending on your goals, your time horizon and to what level of volatility you are willing to accept.
Investing can be a minefield, especially with the number of online scams that people unfortunately fall victim to. We always recommend speaking with a qualified independent financial planner if you require help setting up an investment portfolio. If you would like us to review your existing investments or would like to make a new investment, please get in touch.