If you or your loved ones are thinking about investing your money but you are a bit lost on how to begin, this blog is for you. It gathers tips and suggestions to find your way in this somewhat obscure world of finance.
Investing Your Money
This matter may seem secondary to some people. It is quite common to think that people need a lot of money before thinking about investing. But actually, just putting our money in a bank account is a form of investment. So, now that we realise that we are investing our money without really knowing it, it is important to focus on this question: What is the best financial investment?
To be honest, there is no such thing as a good investment. Or rather, the best placement is really only the best for a given person, in a given context, and for a given objective. So, the first question your elderly relatives need to ask themselves before investing their money is: “Why do I want to invest this amount of money? What is my objective?”
Investment Objectives
The possible objectives for a financial investment are diverse and varied. Here is a non-exhaustive list:
- Security: Putting your money in security; entrusting it to a bank.
- Stock: Build up a stock of money from which to draw in case of unforeseen circumstances.
- Project: To set-up a reserve of money to finance a specific project (purchase of property, purchase of a vehicle, work, travel, studies, retirement, etc.).
- Tax optimisation: Take advantage of possible tax deductions.
- Succession: Prepare the transfer of assets upon death.
- Increase in financial income: Generate additional income.
- Retirement: Build up a reserve of money to supplement future retirement allowances.
- Philanthropy: Making money available to persons or organisations (profit or non-profit) who pursue a goal to which you are sensitive to.
Once the main objective (and possibly some secondary objectives) of the proposed financial investment has been defined, other characteristics can be determined:
- Amount of money to invest, in one payment or on a regular basis.
- Investment horizon; when will you want to have the money back?
- Risk level.
- Desired yield.
Make an Assessment of your Assets
Before your loved ones start buying shares or learning about investment funds, they should first take a look at their financial situation and assess their budget. By doing this they should have an overview of their total finances and their possibilities of investment. To do this, they can start by making an inventory of their assets by drawing two columns. In the first column they will enter their assets, and the second column the liabilities (in other words, their debts):
Assets:
- Current account: £3,000
- Individual Saving Account: £12,000
- Life insurance: £20,000
- Retirement savings plan: £10,000
- Real estate: £185 000
Liabilities:
- Consumer credit: £2,500
- Car credit: £5,000
- Real estate loan: £90,000
How to Allocate your Capital?
Diversify your assets. Diversity simply means not putting all your eggs in the same basket. You might think that the biggest stock market winners have bet everything on a few stocks whose price has been multiplied by 50 or 100, but this is not proven. Indeed, the modern portfolio theory behind asset management, developed in the 1950s by Harry Markowitz, shows that, statistically, the best returns are obtained by investing in all markets.
If you or your elderly relatives invest equally in five companies and one of them goes bankrupt, you will lose 20% of your capital overnight. Even worse, if these five companies are in the same industry, such as oil, the damage could spread to the entire industry and lead to a drop in the value of your portfolio.
On the other hand, if you have diversified your investments, the under performance of one sector will be balanced by the over performance of other sectors. This should not prevent you from focusing on one stock over another, but never concentrate more than 10% of your portfolio on a particular stock.
Invest Reasonable Amounts on a Regular Basis
It is recommended to invest (or dis-invest) as you go along in order to smooth the acquisition and sale prices of your assets. This will reduce the risk of buying at the highest or selling at the lowest.
If your elderly parents have calculated a budget and know their monthly savings capacity, they will know how much they can save each month. On the other hand, it is important not to systematically buy back more shares when they have performed poorly.
It is dangerous to run after losses in the investment field. It is possible for a product to lose its entire value and it is sometimes better to step back.
Some investments have a minimum entry cost. It is unthinkable if they save £500 per month to rigorously invest £100 in real estate, £200 in bonds, and £200 in shares each month. However, to avoid paying too many fees, your loved ones can invest in shares for the first two months, then in bonds for the next two months and then repeat this process.
They can also save a specific amount in an individual saving account (ISA) in order to make a real acquisition once their assets have grown a little. Some banks offer to automatically purchase fund units every month without a minimum. They can also take the initiative to analyse the markets themselves and give the orders to their bankers. For this, however, they will need to know a bit about the Stock Exchange.
A Few Ideas of Investments
Investment in SMEs and start-ups
It is possible to invest directly in an SME, whether or not it is a start-up. Needless to say, this investment must be carefully considered. If it’s possible to gain a lot in the short or medium term, especially in the case of a start-up, you must accept the risk of losing everything.
Real estate in all its forms
For many of us, real estate is a complicated world. Buying a house or an apartment, whether to live there yourself or to rent it, is a significant commitment. You have to save a large amount of money, often have recourse to loans, be able to carry out the inevitable maintenance and repair work, ensure that it does not deteriorate, etc.
In any case, it is necessary to think carefully before investing a large part of your savings in a single property. Real estate investment can be a bit scary, but many consider it the best long-term financial investment. You can get a very high net profitability and cash inflows every month.
Get involved in crowdfunding
The last form of placement mentioned briefly here is undoubtedly the most innovative, in accord with the movement of the participatory economy. Several types of crowdfunding exist. Two in particular are relevant to you:
- Investment-based: People invest in a chosen business and then receive shares in return.
- Loan-based: People lend money to companies or individuals with a project in return for a set interest rate.
Your loved ones need to be very prudent with this kind of investment. It is important to find as many details as possible on the business before deciding to give it money. In theory, they always have a 14-day period in case you decide to change your mind.
The one rule to follow is to only invest money you can afford to lose. When using a crowdfunding platform, check this website to make sure of its legality.
Make a Safe Investment – Get a Careline Alarm
Getting a Careline Alarm is a good investment on the long run, giving you and your loved ones peace of mind. Orders can be placed over the phone with our friendly and helpful customer service team on 0800 101 3333 or online via our website. If you would like more information on the alarm, then please don’t hesitate to get in touch or send an email to info@careline.co.uk.
Editor’s Note: This article was updated on 24th May 2022 to reflect current information.
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