Understanding the Basics of Investing

Why Invest?

Investing is a way to potentially grow our money over time. This might be for a long-term goal such as retirement or a short-term goal like going on a vacation. By investing, we take on a certain amount of risk in the hope that we will make an income or profit. The key is to find a balance between the level of risk and the potential return. This balance will depend on your individual financial goals and how much risk you're willing to take. Remember, the value of investments can go up as well as down.

The Different Types of Investments

There are many different types of investments, or asset classes, that you can choose from. Each has its own level of risk and potential return. The main types of investments include:

• Shares
• Bonds
• Property
• Cash
• Commodities

Shares

When you buy shares, you're buying a piece of a company. This can potentially earn you money in two ways. Firstly, the company might pay out profits to shareholders in the form of dividends. Secondly, if the company does well, other investors might want to buy your shares and are willing to pay more for them than you did – meaning you could sell them at a profit. However, if the company doesn’t perform well, the price of the shares could go down and you could lose money.

Bonds

Bonds are essentially loans that you give to companies or governments. In return, they promise to pay you back the amount you lent them at a certain date in the future, plus interest. Bonds are generally considered less risky than shares, but the potential returns are also usually lower.

Property

Investing in property involves buying a physical building, whether it's a residential home, a commercial property, or a piece of land. You can earn money from property by renting it out or selling it at a profit. But remember, property prices can fall as well as rise, and there can be costs involved in owning and managing property.

Cash

Cash investments include savings accounts and term deposits. While they are the least risky type of investment, they also generally have the lowest potential returns. This is especially true in a low-interest rate environment.

Commodities

Commodities include physical assets like gold, oil or wheat. The price of these commodities can be influenced by changes in supply and demand, such as crop yields for agricultural commodities, or international economic trends for oil and gold.

How to Start Investing

Before you start investing, it's important to have a clear understanding of your financial goals and how much risk you're willing to take. You should also ensure you have a good understanding of the different types of investments and how they work. Remember, it's always a good idea to seek professional financial advice before making investment decisions.