Don’t know what to invest in? Here are 12 Tips that will earn you money
Today there are so many investment opportunities that deciding what to invest in can be difficult.
While the most traditional investment is stocks and shares, you can also invest in alternative markets such as peer to peer funding, crowd sourcing, buy-to-let, and even commodities such as gold.
Note that we aren’t providing you with any investment advice, but here are 12 investment tips that will earn you money.
Invest in Equities
Equities tend to be one of the first things people consider when selecting what to invest in and they are the most traditional ways of investing.
There are different approaches that you can take.
If you are looking for a high octane investment and you are happy to take on some serious risks, then day trading might be right for you, though generally investing in equities is usually a long term investment strategy where the investor is happy to hold shares for an extended period that will allow her to weather the storms of share price volatility; even so they are high risk asset.
There are two kinds of shares: ordinary shares and preference shares.
With ordinary shares you become a part owner of the company and you will receive dividends on your shares if and when the board of directors votes to issue dividends.
Generally, you also have voting rights.
Preference shares don’t give you the right to vote, but you do receive certain privileges, for instance you are more likely than receive some pay out should the company go bankrupt than you would if you held ordinary shares.
You can purchase shares through a traditional stockbroker, on-line, or through an investment fund. Shares can be held in a stocks and shares ISA.
If you don’t know what stocks and shares to invest in, you can choose to invest in a fund. Essentially when you do this you delegate the decisions on which investment vehicles to purchase to the fund manager.
There are various kinds of investment funds, and many of them have a wide range of investments that include equities, bonds and commercial property, often with the investor having the freedom to choose how his personal portfolio will be spread across these.
Some funds are designed to simply track finance indices such as the FTSE 100, while others are micro-managed by the fund manager.
Fees are payable on both of these, with the ability of the fund manager to make good investment decisions often being reflected in the management fees that are charged. OEICs or Open Ended Investment Companies are a slight variation on this.
With this model you are buying shares in the investment company, and it is the company that owns the shares if buys.
If you are looking for something a little different, then you could consider investing in AIM, the Alternative Investment Market.
This is a high risk market with the potential of large returns if you get it right.
When it comes to what to invest in, there is a huge degree of choice.
For instance, you could invest in individual companies, which is probably the highest risk option, or you could invest in funds that can spread your investment across the market, reducing the risk.
It is certainly a specialist market, and one of its main appeals is that it contains many young fast moving companies that have a large growth potential.
Shares can rise very quickly, but they can fall quickly too, so it is an investment that needs a fair amount of attention and flexibility.
Generally, investors buy shares in AIM through a traditional stockbroker or AIM market specialist.
An advantage of investing in AIM is that currently investments are not subject to inheritance tax after two years of ownership with a potential saving of 40%. There are other tax advantages too.
For people looking for something a little different when considering what to invest in crowdfunding is an interesting alternative.
Usually taking place over the internet, investors are presented with a range of investment opportunities.
These are generally in the form of an idea or business proposal advanced by the entrepreneur seeking finance for his or her project.
Generally, there will be several investors in the project, with each one of them investing a relatively modest sum.
In return for the investment, investors received a reward, and there are several different models.
With equity crowdfunding investors receive a share of the business, though other rewards might be an option to buy the product at a discounted price or being offered it for free.
Entrepreneurs usually state the actual investment they require, and the project is launched only when that amount has been pledged, though on some crowdfunding platforms the entrepreneur keeps the total amount of money raised.
There are many crowd funding platforms across the world and each one has many investment opportunities, so be prepared for some serious research if you decide to follow this route.
An ISA is an individual savings account. It isn’t in itself an investment fund; essentially it is a wrapper that can contain a range of investments.
The investments within an ISA are free of capital gains tax and there is no tax to pay on interest generated by your savings.
When you choose what to invest in your ISA, you can select a combination of cash, stocks and shares, and other investments.
ISAs are subject to certain rules. For instance, there is a limit on the amount that can be invested in any single year.
When first introduced in 1999 the cash limit was £3,000 and the stocks and shares limit was £7,000.
In 2008 these were increased to £3,600 and £7,200 respectively with further increases in subsequent years.
The current limits are £15,240 in cash and £15,240 in stocks and shares.
If you withdraw funds from an ISA they cannot be re-invested, though you can transfer investments between ISAs.
Junior ISAs are also available, though money can only be withdrawn once the holder reaches 18 years of age.
Help to Buy
The government has launched a Help to Buy scheme for young people with are seeking to purchase their own home.
The scheme is linked to ISAs. The scheme is for people aged 16 and over who are saving for a deposit to put down on their first home purchase.
For each £200 saved, the government will add an extra £50 up to a maximum of £3,000. For a couple, this is increased to £6,000.
Note that the extra money is only added when the savings are used for buying a home.
Note also that the scheme can only be used for the purchase of the first home, and there is a maximum purchase price.
This is £450,000 in London and £250,000 throughout the rest of the UK.
The scheme can be used alongside other initiatives designed to make it easier for young people to get on the property ladder.
Investing in corporate bonds tends to be a relatively low risk investment that generates a regular income.
Essentially this kind of investment is actually a loan; you are lending money to the enterprise that issues the bond, and in return you will be paid interest on the loan.
The bond will have a maturity date, which is the date on which the capital will be repaid. When you are considering what to invest in with bonds you will find that you have many choices.
You can choose long term bonds, short term bonds or a mixture of the two.
Expect the interest to be considerably more than you would receive from a bank, and while bonds have relatively low risk, they are not risk free.
Alternatively, you could invest in government bonds which have very little risk, but also they generate low returns.
Premium bonds were introduced back in 1956. Essentially they are a lottery in which you will always get your principal back any time you wish with zero investment risk, but they don’t pay any interest or enjoy any capital growth.
Essentially their value decreases in line with inflation.
Potential yield depends on the luck of the draw, as effectively you are gambling their potential interest in a monthly lottery.
While you could win as much as a million pounds from a single premium bond, the chances of you doing so are exceedingly low.
Other prizes range from £25 up to £100,000. If you have £30,000 invested in premium bonds, then on average you will win around 10 prizes a year.
The minimum holding is £100, and the maximum £50,000. If you are what to invest in premium bonds, then you could equate the average returns to around 1.35%, but of course you do stand a chance.
Albeit a very small chance, of winning a substantial amount of money. Premium bond winnings are tax free, which can be a significant advantage.
Buy to Let
Buy-to-let has been making good returns over recent years, with high rentals providing excellent yields while rises in property prices are delivering good capital growth. Of course this depends very much on where you are investing.
If you were lucky or wise enough to invest in in buy-to-let property in London a few year ago, you will have enjoyed record returns.
Perhaps the boom years of buy-to-let are over, or just taking a pause, but with mortgage rates at their current low values there remain plenty of investment opportunities.
You will need at least a 25% deposit and a buy-to-let mortgage which is deferent from a residential mortgage.
There are many choices about what to invest in with buy-to-let. For instance, as an alternative to conventional buy-to-let properties, you might also consider holiday lets.
While the returns might not be quite as high, you might also take advantage of having a holiday property to stay in yourself, especially out of the usual holiday season.
If you are looking to invest in a town or city with a college or university, you could invest in student lets which have high returns, though of course with their own challenges.
Invest in Gold
Investing in gold has a long tradition. Often it is seen as and insurance investment that will maintain value even when the stock market takes a dive. With gold there are several choices regarding what to invest in.
You can purchase gold bullion in the form of gold sovereigns or Krugerrands and you can purchase bullion in the form of gold bars.
Gold bars aren’t necessary large blocks of gold as featured in heist movies; tiny gold bars are available that you can purchase for around £100 depending on the current price.
If you don’t want the risk of keeping your gold bullion yourself, you can buy it from such places as the Bullion Vault and let them store your gold for you.
There is a small storage charge, but at least you can rest assured that your gold is safe. You can also invest in gold without buying physical gold.
You can invest in companies that mine gold, and in traded funds such as Gold Bullion Securities which track the spot price of gold.
Note that the price of gold tends to be quite volatile, though often with long term trends often punctuated with short term rises and falls.
Gold isn’t the only commodity to invest in: you can also invest in crude oil, energy and other metals.
Generally, this is done through futures markets which is an agreement to sell or buy at a set date in the future at a specified price.
Peer to peer (P2P) lending in an exciting alternative investment opportunity that has been gathering momentum over recent years.
Essentially P2P websites provide a service to bring together investors who want to lend with individuals and businesses that want to borrow.
For borrowers, P2P loans are an attractive alternative to conventional bank loans and are often available at lower rates than they would get with banks; for investors the advantage is higher interest rates than they would get in conventional saving accounts.
In exchange for this higher rate of return, investors accept a higher level of risk. Typical returns are from 3% to 6.5% depending on a range of factors including the term of the loan.
Both lenders and borrowers benefit from the absence of a middle man, the bank, in terms of saving bank fees, a big plus when considering what to invest in.
Although the P2P model carries a higher level of risk than a bank, borrowers are credit checked and their risk levels are assessed.
P2P websites are regulated by the Financial Conduct Authority (FCA) and are obliged to clearly state risks and to have a strategy to handle any problems that might occur.
New rules will be coming into force that will require them to maintain a minimum capital holding of £50,000.
P2P Bitcoin Investments
Bitcoin lending is a variant of the P2P lending model described above and is an attractive alternative for people looking for what to invest in to make high return for moderate though controlled levels of risk.
Although a relatively new model, it is growing at a rate as it demonstrates many advantages over the conventional model.
There are now several bitcoin lending websites each of which has a slightly different model. Bitbond is one of them.
It offers loans to borrows in many countries throughout the world for terms that range from a few weeks to five years; borrowers don’t even need a bank account.
Investors can earn excellent returns; up to 13% interest rates are possible.
To cope with the volatility in the value of bitcoins, loans are tied to the USD. Thus when bitcoin values increase against the dollar, repayments increase and when the bitcoin dips so too do repayments, maintaining a constant repayment rate against the dollar.
The credit risk of each borrower is assessed using a range of measures and regular borrowers are able to improve their rating by their repayment records.
As you can see, there are many ways in which you can make money investing.
Choosing the right way for you might involve a fair amount of research, but you should find doing so is rewarding in more ways than one.
After all, investing should be fun as well as a way of making money.