Popular Investments Explained
Investing can be a scary word, but it doesn’t have to be. Understanding the investment options available to you is a good way to remove the fear from investing. If you’re well informed, you’re in a good position to choose an investment that suits your needs. But it’s also important to remember that while you’re investing in hopes of high returns, there is the possibility that you may end up with less. So it may not be for everyone.
Here we take a look at some of the most popular investment options available to everyone today:
- Exchange-traded Funds (ETFs)
- Peer-to-peer Lending
When most people think about investing, they think of buying shares directly in companies on the Stock Market.
Usually the mere thought of this is enough to prevent people from investing. Questions begin to arise like: “How do I understand how the Stock Market works?”, “How do I know which company to invest in?” and “What if they go out of business?”
If you do decide to buy shares in a company, it’s important to do your research. You should only invest in companies you understand and ideally, believe in. You should be expecting to hold onto your shares for at least 5 years, with the view to selling for a profit if the value of your shares has increased to a level you are happy with.
With any investment it’s important you remain calm, it’s normal for share prices to fluctuate over time. Only sell when you are sure there is no extra value to be had from owning them any longer.
For most beginner investors there are other investment options which can be better places to start. For example: Investments that are setup and managed on your behalf by experienced investors (both humans and robots 🤖).
Exchange-traded funds (ETFs)
An ETF is a group of investments purchased together. They are usually made up of shares of stock, bonds and currencies/cash. The decision on what is in your fund is most frequently determined by your desired risk level. Once the provider of the fund understands this, the investment is completed and managed on your behalf. It’s up to you if you want to drill down and understand exactly what is being purchased in your ETF, and while it’s always recommended to understand what you’re investing in, it’s not essential in this case.
The diversified nature of ETFs is one of the main benefits. By diversifying, price fluctuations are likely to be smaller due to the fact you aren’t putting all your eggs in one basket.
They are usually low cost, transparent and all-in-all a flexible and easy way to get started in investing, without needing to be an expert. Some online providers let you get started from as little as £1, you don’t need to have much money to dip your toes in the investing pool.
Peer-to-Peer (P2P) Lending
P2P Lending also known as Crowdlending is a very different type of investment that has grown in popularity over recent years. Instead of having your money invested in a fund or company, it’s lent to various people, with the view to them paying back the money with interest.
The risk of course lies in them failing to repay your loan. Popular online services offset this risk by lending your money across many people, meaning if one fails to pay back your loan you are only losing a portion of your cash.
The online providers manage the whole service and debt repayments, so all you have to do is put money in and usually be willing to leave it for at least a year before withdrawing.
A cryptocurrency is a digital currency often decentralised, meaning it has no connection with any state or government. It’s designed to be secure and anonymous. They use cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.
Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled. They have become a bit of a phenomenon recently due to the surging price of Bitcoin, the first cryptocurrency. People are buying in with the expectation that it and other cryptocurrency values will continue to increase, meaning they can sell later for a profit.
The problem is that the cryptocurrency space is very new and it’s hard to predict what will happen with it in the future. Already, it has proved to be volatile, with sharp sudden changes in price, both up and down.
Opinions differ wildly on the future of Bitcoin and other cryptocurrencies as an investment. Believers point to its limited supply and growing usage as signs of its value, while detractors see it as a speculative bubble, ready to burst at anytime.
If buying cryptocurrency is something you wish to try, it’s best to recognise there is a risk of losing some, if not all, of your invested money. Ensure you only invest what you can afford to lose. If risk is something you’re not very comfortable with then you might want to choose a more stable investment option.
These are just a few of the many investment options available to you. The barriers to getting started have been drastically lowered in recent years, you can now get started with almost any type of investment in minutes on the internet or via mobile apps. It’s important to take the time to understand and consider your options and choose the investment strategy that best suits you.