You’ve heard of an investment portfolio – but what actually is it? Do you need to know lots about the stock market to have one? (Short answer: no!).
Your investment portfolio is a fancy word for everything you’ve got your money invested in. That COULD mean the stock market – but it can also include other things like property, peer to peer lending, and your pension. Let’s go back to basics and look at what you might have in your investment portfolio (without even realising it).
- What is Investing?
- Investing Isn’t Just Stocks And Shares
- Stocks and Shares ISAs
- Build Your Investment Portfolio With Property
- Look Into Alternative Investments
- Don’t Forget Your Pension!
- Want to Find Out More About Investment Portfolios?
We’re all looking for ways to grow our wealth – and putting your cash into a savings account just won’t cut it these days. Interest rates are below inflation – which means your money loses buying power as it sits in your account. While you do need a cash buffer set aside for emergency spending, the rest of your money can work much harder if you invest it.
Investing is defined in the dictionary as putting money, effort, time, etc. into something to make a profit or get an advantage.
In terms of finance, it’s about buying an asset which you can then sell for a higher price in the future. This could be a share in a company, cryptocurrency, property, antiques, art… almost anything!
There are so many ways to invest. It’s not just stocks and shares, although these are a good form of investing.
The jargon surrounding investing may make it sound complicated, but all you have to do to be an investor is buy something that should increase in value over time.
This means you don’t have to limit yourself to stocks and shares if you want to become an investor. You can invest in anything you like, as long as you have reason to believe it’s going to become more expensive in the future.
You can even invest in comic books if you want!
Whatever you choose to invest in becomes part of your investment portfolio, that you can add to anytime throughout your life. The idea is to put your money into something that will generate a long-term return. That return could be in different forms – such as the profit on a stocks sale, rent from a buy-to-let, or re-investment for future funds like your pension.
Yes, not ALL investing is about the stock market – but equities ISAs are a great place for newbies to start. Also known as Stocks and Shares ISAs or investment ISAs, you can manage your stock trades yourself – or choose pre-selected options based on how much risk you’re willing to take. A general rule of thumb to follow is: the longer you can leave your money invested, the higher the risk you can take. Of course, as with any investing, you could get back less than you pay in. However, a very long-term plan of ten, fifteen, twenty or more years will help you ride out peaks and troughs in the stock market.
The best thing about Stocks and Shares ISAs is that they fall within the tax wrapper, so you can invest up to £20,000 a year without having to worry about paying a penny in tax.
With a Stocks and Shares ISA you can hold shares in any or all of the following:
- individual companies
- unit trusts
- investment funds
- corporate bonds
- government bonds (gilts)
You can even keep a portion of your investment as cash within your equities ISA (though the returns are often non-existent). Your best option is to have a Cash ISA with your safety savings net in it, and then an equities ISA (as well as an IFISA and/or a LISA if these suit you, too).
Most banks offer a Stocks and Shares ISA option – and so do other finance platforms like Moneybox and Nutmeg.
There are lots of ways to invest in property – you don’t have to buy a whole house to have property in your investment portfolio, either!
If you want to buy a house or a flat you have two options for investment opportunities.
A benefit of buying property as an investment is that you don’t have to buy where you currently live. Many people in London, for example, cannot afford the prices there. However, there’s nothing stopping them buying a property somewhere cheaper and renting it out.
But there are also downsides.
- You have to save quite a lot of money for a deposit (usually at least 25% for a buy-to-let)
- You need to have a primary residence (i.e., your own home) before you can get a mortgage as a landlord
- It is ‘illiquid’ so it can take a long time (and some cost) to sell the property and get hold of your cash
- There are a lot of costs involved including the maintenance of the property, service charges, agent fees and the cost of tenants either not paying the rent or trashing the place.
Think carefully if you can afford a buy-to-let property – and the work renting out a property involves – before you jump in.
If you can, it may prove a great addition to your investment portfolio.
This is where you buy a property at a discounted price because it needs a significant amount of work. Then you do the work yourself and, hopefully, sell it on for a profit.
This can be risky as you’re not guaranteed an end price. You could end up losing money if renovations cost a lot.
Other ways to invest in property
Want to invest in property without owning a whole home? Look no further.
- Real Estate Investment Trusts (REITs)
- Property stocks and shares (estate agencies, house-building companies etc)
- Peer-to-Peer lending
As a shareholder in REITS or property companies, you’ll benefit from the fund or company’s success and share of the profits – without needing a lot of capital.
With peer-to-peer lending in property you lend directly to property developers or mortgage holders and gain interest on those loans.
Antiques, art, musical instruments, cars, watches and even wine are just some of the more common alternative investments available.
You can even invest in diamonds. These have proven to be a very good investment in the past: from 1999 to 2011 three-carat diamonds increased 144.9% while five-carat diamonds increased 171.1%.
Of course, there’s no guarantees when it comes to investing in anything, but they beauty of investing in alternative assets is that you can choose something you like.
Say art is your thing – the painting you choose may not increase in value and grow your wealth as you hoped. But, at least you can still get personal value from it as long as you and your family like looking at it!
One man made £44,000 by investing in vintage whisky as a birthday present each year for his son. The son used the profits for his first house deposit!
We have a LOT of articles on how to make money from collections (art, piggy banks, Barbie dolls and more) so take a look to see what you would enjoy having around your home that could be a hobby and increase in value.
Even if you don’t think you’ve started your own investment portfolio yet, it’s likely you already have one!
Your pension is invested and is a key part of your investment portfolio. You shouldn’t forget about it – it’s one of your most important assets.
As long as you meet the eligibility requirements for auto-enrolment, you should have a company pension. Paying in the minimum contributions each month is a really easy step towards building your investment portfolio.
The best thing about workplace pension schemes is that not only do you put money in, but so does your employer and you get a government bonus. You’re essentially receiving free money as well as seeing it increase in value as you reap the benefits from have it invested for so long.
The sooner you pay more in, the more time your pension has to grow to give you a more comfortable retirement, so don’t put it off.
You can find out more about workplace pensions here.
If you’re not eligible for a workplace pension, or you’re self-employed, you can invest in a private pension instead. Popular choices for private pensions are stakeholder pensions and SIPPs (self-invested personal pensions).
If you’re interested in investing and want to learn more check out these webinars run by Moneymagpie’s very own Jasmine Birtles.
The topics range from introductions for complete beginners, to more complex topics for those who’ve started their investment journey and want to take it to the next level.
These webinars will help you establish whether investing is worth the gamble and, if you decide it is, will give you the tools to get started.
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