Simply speaking, investment is the act of putting your money into an asset with the expectation that you will receive back more than you put in.
Depending on your situation, and what you hope to gain from your investment, there are different options available to you. However, before you begin to even think about starting your investment journey, make sure you can answer these four simple questions.
1. Why should I invest?
You need to know why you are investing your money and what you hope to gain from it. For many the answer will be because you want to make your money work for you. Investing money allows you to potentially ‘grow’ your money without having to go out and work a double shift for it.
There are, broadly speaking, two types of investor:
Type A: High-risk, high return.
Type A investors are those who invest in opportunities or assets where there is a high percentage of chance that the investment will under-perform, or that their capital will be lost completely. However, because of the high level of risk these opportunities very often offer larger potential returns. Type A investors tend to be individuals looking for a high pay out, or have additional capital they can rely on if their investment goes bust.
Examples of high-risk, high return stocks are biotechnology stocks (the biotech industry is involved in the development of new and experimental drugs). This type of stock is risky because, although the potential payouts are huge, the general failure rate of new drugs is 90%.
Type B: Low-risk, low return
While low-risk investment doesn’t always necessarily mean low return, Type B investors are those who invest in assets that have a lower risk of losing their capital. The downside of this, of course, is that the rewards from this type of investment tend to be a lot more modest than those that are high risk. Type B investors are usually someone who is investing in order to reap the benefits later on for their twilight years.
2. How much should I invest?
Again, this question has a simple initial answer: no more than you can afford to lose.
This comes back to what kind of investor you are. Remember that if you decide you want to be investor ‘A’ (high-risk, high return) then you need to remember that the capital you invest may very likely be lost, despite the potential of a ‘big win’. Keep this in mind when deciding how much money you can afford to plough into a venture.
If you’re Type B, the long term, low-risk investor, then you may need to invest more money in order to make substantial returns. However, don’t be fooled into thinking that low-risk means ‘no-risk’. No investment is ‘no-risk’, and so you should always be aware of how much you can afford to lose before you invest anything.
3. What assets should I invest in?
There is a whole world of different investment options available to you depending on what type of investor you are.
For those Type B investors who are looking for low risk options to pay off further down the line, experts may advise bonds rather than stocks or anything of higher risk. A bond is essentially you agreeing to loan a company (or the government) money. For this reason, bonds are traditionally seen as the ‘safer’ investment option. The money you make on a bond is the company paying you interest on your loan, just as you have to pay on your own credit card or bank loans.
For those who are more Type A, advisors may point them towards options such as stocks, venture capital trusts, or currency investments. If you are not sure of where you stand on the 'risk scale' then it pays to talk to an advisor who can sit down and help you make a detailed investment plan.
4. Should I choose my own stocks?
This decision is really down to you.
Some people are happy to take the bull by the horns and buy their own, after all in the golden age of the Internet you can do a lot of thorough research and make your own informed decisions. Others, however, are more inclined to pay higher fees but leave their money in the hands of market experts. You should look at your goals, your capital, and the types of investments you would like to make in order to figure out which course of action is best for you. The more complicated the investment, the harder it is to manage yourself.
In the Oval investment section you have the opportunity to invest in a number of products that have been designed specifically for Oval users. Each product contains a select number of stocks from companies that represent the goal of that product. For example, our “Women at the table” investment product allows you to invest in companies that ensure that at least 20% of board members are women.
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.