Protecting your wealth from market ups and downs
If you’ve got a significant amount of money in your cash savings account, enough to cover your regular expenses for at least six months, and you would like your money to grow over the long term, then you may want to consider investing some of those funds.
Investing is a lifelong process, meaning that the sooner you start, then the better off you could potentially be in the long run. Regardless of what stage of life you are in, you will need to think about what your investment objectives are, how much time you have to invest the money before needing it, how comfortable you are with risk and protecting your wealth from market ups and downs as best you can.
Right savings or investments
You can earn interest by putting money in a savings account, but savings accounts generally earn a lower return than investments. Investments have the potential for higher return than a regular savings account.
Note: Remember: the greater the risk of an investment, the higher the potential return or loss of your money.
Depending on your circumstances you may want to consider a range of different investment options. A diverse investment portfolio can help protect your wealth from the market ups and downs.
There are four main types of investments. Each one has it’s own benefits and risks. These are:
- Cash/Deposit – savings held in a bank or building society account
- Shares – when investors buy a stake in a business or company
- Property – when investors invest either in physical commercial or residential building or within an investment that holds a property fund
- Fixed interest securities (also called ‘bonds’) – when investors loan their money to a company or the government
All the different assets that are owned by an investor are called a ‘portfolio’. You can choose to invest directly in these assets, or you can decide to invest in a managed fund that offers a range of different investments and is usually looked after by a professional fund manager.
Defensive investments focus on generating regular income, as opposed to growing in value over time. The two most common types of defensive investments are cash and fixed interest.
Cash investments include:
High-interest savings accounts – The main benefit of having a cash investment is that it provides a stable and regular income through interest payments. While this is the least risky type of investment, it is still possible the value of your cash could decrease over time. This could happen if the cost of goods and services rises quicker than the interest your money is earning, meaning your money buys less than it used to.
Fixed interest investments include:
Term deposits – A term deposit is an investment that locks away your money for a specific amount of time while it earns interest, meaning you can’t be tempted to spend it. However, you also cannot access this money quickly should you need to.
Government bonds and corporate bonds – Bonds, on the other hand, primarily function as loans to governments or businesses, who then sell them to investors for a specific period of time and they pay them a regular rate of interest. At the end of the time period, the value of the bond is repaid to the original investor.
Although bonds are considered by some as a low-risk investment, be aware that certain types can still decrease in value over time. Meaning that there is a risk that you may potentially get back less money than you paid in.
The aim of growth investments is to increase in value over time, alongside potentially paying out an income. While growth investments have the potential to deliver higher returns than defensive investments, you also have a higher chance of losing money.
The two most common types of growth investments are shares and property.
At its simplest, a single share represents a single unit of ownership in a company. Shares are generally bought and sold on a stock exchange.
Shares are considered growth investments because their value can rise. You may be able to make money by selling shares for a higher price than you initially pay for them.
If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.
The value of shares may also fall below the price you pay for them. Prices can be volatile from day to day, and shares are generally best suited to long-term investors, who are comfortably withstanding these ups and downs. Shares are considered one of the riskiest types of investment.
Property investments include:
Hotel rooms or hotels
Like shares, the value of a property may increase over time, and you may be able to make money by selling a house or apartment for more money than you initially paid for it.
However, prices are not guaranteed to rise, and property can often be difficult to sell quickly. This means this may not be a good option if you need to be able to access your money easily.
Returns are the profit that you earn from your investments. Depending on how you invest your money, it could be paid in a number of different ways:
- Dividends (from shares)
- Rent (from properties)
- Interest (from cash deposits and fixed interest securities)
- The difference between the price you pay and the price you sell for – capital gains or losses.
Professional financial advice
As you can see planning your investment strategy can be complex and needs to be tailored to the individual and their unique economic circumstances and lifestyle. This is why you may want to consider seeking professional financial advice. A Lifestyle Financial Planner will work with you to understand your life and financial goals and ensure that your investments are structured to support these aims. They will assist you in regularly reviewing your portfolio’s performance over the years so that it continues to align with your lifestyle aspirations. Giving you peace of mind that the investment decisions you make mean you can look forward to a brighter financial future.
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MRA help individuals, businesses and families achieve the best quality of life they can with the resources they have. MRA specialise in corporate solutions, cash-flow analysis, taxation, debt management, savings and investments, lifestyle planning and much more.
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