Introduction to Investments

Investing is essential for people that are working towards a carefree future; it can provide more sources of income, develop financial independence and/or create more favourable retirement options.

The investing landscape is extremely dynamic and constantly changing, thus what seemed to be a good investment yesterday might not work today, however, those who take time to understand the basic principles of investment can gain significantly in the long term. 

Is it easy to find the right investment opportunity in today’s markets?   

The more commonly known and advised on markets, asset classes and products that continue to provide a good ROI over time are investments such as: 

Bonds & ISA’s, hedge or private equity Funds, ETFs, Stocks & Shares (historically shown an 8% – 10% average, over a 20-25-year cycle), Real Estate, Loan Notes, REITs, Commodities, Peer to Peer lending and Annuities.

Irrespective of the many sectors, asset classes and alternative investments to choose from, all investors, from newbie to seasoned-pro, are seeking a moderately sound vehicle, platform, product – tangible or intangible – to place their money/savings into, and of course, aiming to secure the best return-on-investment (ROI).  

In the bestseller ‘Rich Dad, Poor Dad’ by Robert Kiyosaki, the author recalls the best financial advice given by his ‘rich dad’ as such: the difference between rich people and poor to middle-class people is that rich people invest in assets, while everyone else invests in liabilities that think that are assets. For example: if you invest in a new property that is essentially going to cost to maintain it, that property will become a liability. However, if you invest in a property that is going to be rented out and generate income from it, thus eventually generating a positive ROI over a period of time, that property will become an asset. In short words, assets bring money in; liabilities take money out. 

Asset Classes and Risk Factor

With so many investment products within many markets, all offering varying percentages of annual or regular return, investment education and knowledge are key, along with avoiding investments you do not fully understand.  The variety of possible assets one can add to their portfolio is huge and the return is often connected to how risk-averse the investor wants to be.  

Let’s take bonds as an example: there are many bonds and ISA options with varying percentages to suit different investor’s, from risk-averse fixed returns, fixed target returns to medium-high risk speculative returns.  

Fixed Returns: to generate income whilst safeguarding capital invested.

Fixed target returns: to gain exposure to the growth in global equity markets whilst balancing this with investment in lower risk and secure fixed income.

Medium-high risk speculative returns: to invest wholeheartedly for the maximum possible growth.

The projected return from the medium-high risk speculative returns will be higher than that of the fixed target returns and in-turn the fixed return is lower again – as the risk has been mitigated. 

Investing can be an extremely daunting concept for beginners, and interestingly products in certain markets are prohibited to ‘retail investors’ and only available to ‘Sophisticated investors’ or ‘High-net worth individuals’ due to their nature and understanding their risk.  

Investors that take time to understand the many asset classes stand a great chance of investing in the right products in the right asset classes ideal for their individual needs. 

For more on Bonds and ISAs and the Property Market read: