Considering investment to grow your income and have more financial security? Follow our basic investment tips to build a strong portfolio.
Investing is one of the most important ways to actual build your wealth but its not something that can make you financial free overnight. If you have enough savings or money but dont know how to invest it consider the following methods below for your money to work for you.
1. Bonds
A bond is a debt investment in which an investor loans money to an entity that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and governments to finance a variety of projects and activities
Interest on bond is usually paid every six months, and the interest rate is normally determined by two main criteria: the credit quality of the entity that issues the bond, and the bond's lifespan, which can extend to 30 years. Sounds cool!
The major difference between bonds and shares is that shareholders own a part of the company or government entity. Shares have an indefinite lifespan, while bonds have a defined lifespan.
Most bonds will track or even slighty outperform inflation with their income.
And because bonds yield returns in a completely different way to shares, they represent a diversifying element in any portfolio.
2. Dividents
When a company makes a profit, it might decide to pay some of that profit to the owners of the company. The payment to shareholders is called a dividend, and the amount paid to each shareholder will be determined by the amount of shares that owner holds.
Dividends are usually paid in cash, but sometimes shareholders are offered shares to the same value as the cash instead. Dividends attract tax, but they are much more tax-efficient than interest. Over time, your dividends can increase in value if the company does well and profits go up.
3. Endowments
In an endowment, you invest money via a luno sum or monthly debit order for a minimum of five years or longer. Endowments have a fixed contract when you start the investment, so there are specific rules that regulate changes to your monthly payments or lump-sum additions. The money that you then take out of the endowment when it matures is tax-free for the investor. This is because the endowment itself pays income tax and capital gains tax. Capital gains tax is paid when you have made a profit on an investment.
Endowments can be expensive when sold by a life assurance company or bank, because they will typically charge you an upfront fee and a high annual fee. I prefer endowments that are offered by unit-trust companies, because there is usually no cost associated with them. Endowments are are five year product, which means that you might encounter problems if you need your money within the first give years. Your capital will be tax-free only if you have invested for five years and longer.
4. Exchange-traded-funds (ETF's)
Exchange traded funds trade on the stock market like an ordinary share, but they consist of a basket of investments. ETF's generally charge very low annual fees and no upfront fees, which makes them ideal for private investors who want to invest in shares either with a lump sum or debit order.
Most ETF's are based on an index, or a portfolio of securities representing a particular market as a whole or a particular market sector. Instead of buying shares in each company individually, you can buy one ETF that owns shares in all of them.
New investors are advised to stick to the KIS principle with ETF's:`keep it simple' It is the nature of product providers to try to sell 'newer,better,fancier' products all the time to beat their competition and there are few find managers that are able to outperform indexes.
5. Listed property.
Listed property refers to property companies whose shares are traded on the stock exchange. These companies generally own a variety of office blocks, industrial buildings and shopping malls. Some listed property companies manage their properties, while others simply own the buildings but outsource the management to property managers. These companies often make use of debt to buy buildings so that you get an element of hearing in your investment.
For investors who prefer property to normal shares, This should be your investment of choice. I tend to recommend listed property in conjunction with bonds to investors who require inflation-beating income and diversification. Property investment are extremely sensitive to interest-rate fluctuations, which results in their prices skyrocketing when interest rates are low. This can cause bubbles in their share prices. In addition, there is always a risk that the managers might borrow too much and place the company in jeopardy. With the larger companies this is less of a risk. The income that these companies generate is fully taxable as income and not as dividends.
6. Fixed deposits.
A fixed deposit is a kind of savings account that usually pays a fixed rate of interest for a fixed time period. As the name suggests, you make a deposit of a fixed amount and then leave the funds to mature and gather interest until the maturity date arrives. Funds placed in a fixed deposit usually can't be withdrawn prior to maturity, although there are some banks that have slight variations on this rule. Sometimes funds can be withdrawn if you give advance notice, but you might incur a penalty for this.
7. Money market accounts.
A money market account is an account at a bank that pays a higher interest rate than other savings vehicles usually offered by banks. In exchange, you are required to keep a fairly high minimum balance in the account and there are also restrictions on how many transactions you can make throughout the account per month.
In essence, a money market account is a savings account with terms and conditions and better interest rates. The interest rates for money market accounts are normally higher than for other very low-risk investment, and there are generally no obligations to invest your money for fixed periods. Because the funds are readily available, I like to use money market accounts for my emergency cash find. But as with all cash investments, This is not a good place to keep your money for the long term,unless it is your emergency fund. The interest earned will generally not beat inflation over time.
Watch out for the banks that charge initial fees on money market accounts.
8. Shares
A share is the smallest unit of ownership in a company. You can own shares in a private companies as well as in companies that trade on the stock market. Investors often refer to shares as 'equities' as the terms are interchargeable. When a company initially lists on the stock market, it sells shares to investors as a way of raising money(capital). The income that the shareholder earns from owning a share is called a dividend. Companies are not obligated to pay dividends, but most of the larger, established listed companies do pay dividends to shareholders when profit allow, usually on a six-monthly basis.
If you want to buy or sell shares, in a private company, you will need to arrange your transaction, whereas the trading of shares in a listed company is done on the stock exchange via a stockbroker. Most private investors will own shares through a unit trust, retirement find or ETF, or directly via a stockbroker. You will have gathered that shares are the best possible investments.
Shares are volatile(their prices go up and down), subjects as they are to the vagaries of the emotional tide that affects investors around the world. Many fortunes have been created and destroyed by those who think they are more intelligent than the market. Uninformed individual shares are likely to lose money. Every investor should have a portion of his or her capital in shares(at least 35%, or to a maximum of 90% if you are very young). You don't need to invest in them directly, ETF's and unit trusts are also great vehicles for investing in shares.
Keep in mind that over the long term, more than 50% of the return generated by shares on the stock market is the reinvestment of dividends. If you do not reinvest your dividends, you will severely limit your potential capital growth.
And lastly if you saw the method you would like to try out consider into doing a proper research or seek a financial adviser to help you and be certain about your decisions.
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