What is investing?
What comes to mind when you hear the word investing? Something scary? Something dodgy? Perhaps something risky? If all of these things are true, how come lots of people have made millions and sometimes billions of pounds doing it?
To invest is to allocate money in the expectation of some benefit in the future.
In finances it’s known as a Return. I.e. I give you £100 now, but in return i’d like back my money plus more in the future.
In Cryptocurrencies investments can sometimes be even greater. Bitcoin, in 2015 (not that long ago) cost £215.20 each. If you had purchased just 1, today it’s worth £9000! in 2017 it maxed out at £14,000 each? Not a bad investment for £215.20. To learn more about Cryptocurrency see here.
The Apple computer company
It’s February 2007. Shares in this company cost about £10 each. Not overly exciting, but on the news you hear it may be making phones soon. As you like and know the brand quite well you decide to purchase 100 shares in total.
100 shares in Apple x £10 for each share= £1000.
4 months later that £10 share now costs £20 per share! WOW! Effectively doubling its price (any your money) by 100%!
Within 4 months that £1000 is now worth £2000. If I was to withdraw my investments from Apple and turn it into cash, I would now have £2000 in total.
Here comes the magic ...
It’s now 2020. Many years have passed since I made my one and only investment in Apple. Those shares are now worth £350 each.
Current price of Apple shares each - £350 x 100 shares = £35,000 ... Your £1000 investment has transformed into £35,000!
Now, we know what you’re thinking, that ship has long sailed. But has it? Most people would simply give up on investing, go back to their 9-5 job and then re-think about doing it again sometime in the next year. However, the questions to ask are:
- ‘Does this stock have any more mileage in it’? I.e. Could it make more money in the future?
- ‘Is still a good value stock’?
- ‘Will there be other stocks coming along, perhaps just starting out like this company did?’
If investing is so good, why don’t others do it?
Most people understand that investing in items such as stocks and bonds or even property smart thing to do, however, they are also scared of losing all their money. The truth is, most people don’t want to learn about investing. People are often lazy, risk adverse and would rather play safe working 40+ hours a week making someone else rich.
The truth is, the majority of sensible investors don’t lose money. Those who understand what they are investing in, whether it is property or stocks, do so for a set goal or purpose. They do not venture into areas they do not understand, fad schemes or purchase investments that are too expensive. Nor do they invest in things they cannot afford to lose.
Even if you only invest 5% of your money, it will still be worth it
What can you invest in?
These are the main areas people invest their money. The main ones in the UK include:
The term stocks and shares are used nowadays to represent each other. A stock is known as a ‘security’ and it demonstrates and shows ownership of part of that business. This entitles the owner of it to a proportion of the company’s profits equal to how much stock they own. Units of stock are known as ‘shares’ of that company, and are purchased you by a company’s such as Hargreaves Lansdown or eToro, from the stock market, on your behalf.
Bonds are different from stocks in several ways. Firstly, holders of Bonds or Securities are known as ‘bondholders’ and are classified as ‘creditors’ to the business. Bonds/Securities are a way for companies or the Government to raise money by borrowing money from investors.
When they are issued by the UK Government are also called ‘gilts’ or ‘gilt-edged securities’, while securities issued by companies are known as Bonds or Corporate Bonds. They can be purchased from many companies, often the same ones who sell Stocks, ISA’s and Savings or Investing Accounts,
They are entitled to interest plus the repayment of principal sum paid for the Bond. They are given legal priority over other stakeholders in the event of a bankruptcy and will be made whole first if a company is forced to sell assets in order to repay them. They can also be called Loan stocks or Debit Securities.
Property can be extremely rewarding, profitable and sometimes stressful. As with investments such as Stocks and Shares, they do carry a degree of risk. Providing you have means of acquiring a large chunk of capital as most Buy-to-Let mortgages insist on a minimum of 25% as opposed to the regular 5-10% needed to buy your personal home, it can generate regular payments, as well as increased asset value, and sometimes the costs can be offset against your taxes. The one key difference between stocks and property is, it’s legally yours and you can touch it. People don’t wake up one morning to find they property has vanished or gone bankrupt, as it can with other investments.
Similar and often confused with Stocks, you are technically doing something similar… i.e. you are buying a company. Often it involves start-up businesses who are looking to raise money (capital) to aid their growth and or even get started. You may have seen television shows such as Dragons Den? Well this is direct business investing, and involves many areas such as Venture capital, Angel finance Crowdfunding, Flexible business loans and Business expansion funding to name but a few.
Items such as fine wines, Gold, Art, antiques are often known as tangible assets, leaning legally they can be touched. They are often rare and well sought after, and the less of them in existence the greater their value can rise.
Fine Wines for example. If a particular wine was in demand and classified by experts as one of the best, for that year, it’s price may be worth £100 per bottle. 5 years later, if most owners have drunk theirs, you may find your bottle of wine is now worth double its value or more. You often see vintage ports and whiskeys from the 1800s go for hundreds of thousands of pounds, again, depending on their condition, age, manufacturer and how many are left in existence.
Arts and collectables often seem to go up in value, again you need to know plenty about this world. Tastes can change often, as well as can fashion so it’s always a good idea to keep an eye on the trends.
Which areas are most popular for investing in the UK?
Bonds & Gilts
Popular Trading Apps to Try in 2020
Trade with confidence on the world’s leading social trading platform. Join millions who’ve already discovered smarter investing by automatically copying the leading traders in our community, or get copied yourself to earn a second income
With eToro you can trade traditional Stocks and Shares, Cryptocurrency and CFD’s, all from one easy to use app. Whats best is if you click the link you can get your stocks for 0% commission! Try it out for yourself. No management or ticketing fees.
Nibble is a financial platform that helps investors and lenders, who provide alternative loans, to cooperate. Nibble is owned by IT Smart Finance, which has been creating and developing FinTech products since 2014. The priority areas of the holding’s work are the usage and analysis of big data.
Nibble guarantees investment security, as loans are issued by companies within IT Smart Finance holding.
The average revenue of Nibble reaches 12% per annum, which is higher than the average revenue on the alternative lending market.