Investments are an attractive option for those looking to increase their income, build on their existing savings or simply put money away for retirement. On the surface, investments are simple to understand. They are anything that you purchase or contribute money to with the expectation that you will make a profitable return. However, before making an investment, you must have an understanding of exactly what they are, and how they work as there are many different ones, including bonds, stocks and index funds. All of which are high return investments. The purpose of this article is to share an understanding of the kind of investments that are available to the public and which ones are generally preferred for specific purposes.

What Are Investments?

Like mentioned at the beginning of this article, investments are simple to understand. People make them in the hope they will see returns on their money. However, it’s important to highlight at this point, that returns are not always cash money. They can take many different forms depending on the kind of investment you choose to opt-in for. An investment on a buy-to-let property will give a return in the form of cash from the rent that tenants pay. On the flipside, bonds will generate an income from interest and commodities will pay a return from the increase in their value.

Should You Make An Investment?

Most financial professionals will advise you to hold off making any type of investment if you have less than 6 months’ rent in your savings. This is because even though investments play an important part in your financial future, they are not part of your financial situation in the present day. On the other hand, if you do have a decent amount of savings in and want to take a chance at growing your money further, you should consider making an investment. What kind of investment you pursue is totally down to your personal preference.

What is Growth Versus Value?

When investing in stocks, growth and value are factors that you need to consider. Growth stock is an investment that carries the potential of huge returns but is one that comes at a high price. Making this kind of investment involves paying down a lot of money upfront with the hope of making a profit further down the line. However, value stock is low in price because there isn’t any real expectation that the company that has been invested in is going to increase in value.

Common Pitfalls

While making an investment seems simple on the surface, they can come with some very complex terms and conditions. For example, most investment service providers charge fees for their services which includes managing your portfolio on your behalf. It’s vital to have a clear understanding of the charges that are applicable to the investments you are interested in before you make them, so you know exactly what to expect.

Risk

Some types of investments carry a high amount of risk, while some are much lower. Bonds, for example, are more stable than shares because they have an interest rate that is fixed. However, they come with a bigger risk because they do not have a high rate of return. Savings can also lose buying power as time passes. This means that they lose value if interest rates do not keep up with inflation rates.

Seek Financial Advice Before Investing

While you can get professional advice from a financial expert regarding making an investment, nothing actually guarantees that you will make profitable returns. This is why you should always make a decision based on what you are comfortable with. There is no replacement for your own knowledge of investments and their risks even if you asked a financial advisor for their opinion. At the end of the day, remember that as an investor, you have many different options as to where you can place your money. But, it’s essential to weigh up their pros and cons carefully.