Investing may feel like something that belongs only to the financial experts, but you'd be wrong! We’ve answered a few of the initial questions you may have when you’re beginning to think about investing money for yourself to show you it's simpler than you think.
1. What is investing?
Although smug and irritating, the phrase “working smarter, not harder” deftly explains investing in four words. It’s about paying out money today in order to (ideally) receive a bigger payback in the future. You choose a commodity that should increase in value over time, so that in the future it will pay you back more that you put in.
There’s a whole ream of different ways to invest your money. You can invest in stocks, bonds, real estate, or mutual funds, to name just a few.
2. Do I have to be rich to invest?
This is a common misconception that may be in part due to the universal truth that wealth begets wealth. However, you do not have to be wealthy to invest. In fact, investing is becoming increasingly democratised by smart finance apps such as Oval, who have now made it possible to invest with as little as €100.
All you need to remember when you invest is that investment is a long term game. The longer you leave your money in your investment, the more likely it is grow. This means that once it's invested you shouldn't look on it as 'ready cash' that you can spend and then replace.
3. Is investing risky?
Investment is never a guarantee. Depending on what you invest in, the level of risk will vary. If you invest with Oval you will see that each product has a 'risk profile' attached to it, to help you understand how risky each product is.
Experts say that the best way of managing your risk has been to diversify your investments. Basically, "spreading your bets" by investing in a number of different assets. You should be wary of investing in something you don’t fully understand, and you should read up fully on the details of each investment you’re considering. If you don't know where to start then take a look at these 5 financial ebooks you should be reading to improve your financial literacy.
4. What’s the lowest risk investment option?
It's important to note that investment is never risk free. Traditionally Bonds are considered one of the lowest risk investment options. Because you are essentually earning back money on a loan you have issued, at the end of that period the bond is repaid to you. You may also receive a pre-agreed interest rate that is usually paid annually or bi-annually.
5. How do I know if I should invest?
Of course that’s up to you, but there a few key things you should consider first.
Are you read up on investing?
You shouldn't even think about starting to invest until you really understand the options you are considering, be they stocks, shares, mutual funds, or anything else. Getting involved financially in something you don’t fully understand could cause you real chaos and financial trouble.
Are you financially stable?
Are you able to keep yourself financially steady on a continuous basis? Are you completely debt free? Do you have savings in the bank? And, most importantly, are you able to absorb the loss of your investment if it should happen, without throwing yourself into financial ruin or heavy debt?
If the answer to all of these is yes, then you may be in a position to get investment advice.
Do you have an end goal?
Do you know exactly why you want to invest? Because this will affect the type of investment you make.
For example, if you want to save for retirement then you will most likely want a safe, more long-term growth option. Knowing what you want from your investment will help you choose the right investment option for you.
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.