We know investing can be a little intimidating, and even if you know people that do it, it’s hard to understand how the stock market works and dip your foot (and your hard-earned cash) in the water.
Here at Mintago, we want to actively promote and simplify the way investing is understood. Once you build that savings cushion, investing is a natural next step to get you closer to that financially free dream.
Let’s start with the basic questions:
Investments are something you buy or put your money into to get a profitable return. Chances are, if you’re employed and contributing to a pension scheme with your company, you’re already an investor!
The principle of investing is that you put money into something and then in the future this goes either up or down. That’s where you often see the ‘capital at risk’ disclaimer from financial institutions. In order to make money from investing, you need to be aware that there is a level of risk involved.
But don’t be afraid of risk. It’s impossible to predict the future and everything has an element of risk. Over the long-term you should know that investing tends to deliver better returns than holding your cash in a bank account.
If you’re looking at your long-term goals and wondering how your savings will ever make them happen, investing could be for you. You might have heard the saying: “The best time to invest is 10 years ago. The second best-time is today.” It’s a cliche, but the principle of starting early reigns true when it comes to investing. Through the beauty of compound interest, you’ll earn interest on any initial investment you’ll make, as well as all subsequently generated interest. That’s stacks on stacks of interest.
As time goes by, the amount by which your wealth increases in value grows, even if the rate at which it grows remains constant.
Investing is also a great source of passive income. Fundamentally, passive income is money that you make without having to do much work (in comparison to your day job, for example), and it’s also what those with a ‘’comfortable” lifestyle attribute to their freedom. Although the stock market can be volatile, the impact of volatility historically will be evened out by a conservative investment strategy, as well as the general increase of value in the economy. Even if you have a think on those who held stocks during the financial crisis, refusing to react and sell them at a loss like others and keeping them (for another 10 years perhaps) would have seen their money bounce back and double after the crash.
Like we mentioned earlier, investing works best when you’re trying to get returns for your long-term goals (> 5 years or retirement). Ultimately, there isn’t really a one-size-fits-all plan to investing and it all depends on your own circumstances and how much of an investment risk you are willing to take (the higher the risk, the bigger the potential reward).
Things you should think about before investing include:
Only invest money that you won’t need in the near future. You have to be prepared for your investments to lose value and still be level-headed and comfortable knowing that it will increase over time. Withdrawing money from your investments is also not as instant as other accounts, so keep in mind it won’t be useful for emergencies.
It’s important to pay off high interest debt before you start investing. With expensive credit, you’re likely to get charged more in interest than you’d make in returns from investing.
Most people choose from 4 main types of investment:
We will cover more on each of these in future posts, so keep your eyes peeled!