Thursday, February 7, 2013
All investments are subject to a certain amount of risk. Even money in savings accounts that is covered by government guarantee can risk losing value in real terms if the rate of inflation outpaces the interest being paid.
One of the things to remember when evaluating risk is that the past is not necessarily a good guide to the future. Ultimately all risks and rewards have to be placed in the balance, and the impossibility of predicting the future with total accuracy is one of those factors.
Record keeping and accountancy
Whatever kind of investing you are involved with and whatever level, it is essential to keep meticulous records. There are many reasons for this, and if you allow yourself to become at all disorganised you really are just making a rod for your own back.
Tax rules and regulations can be quite complicated. Having a properly qualified accountant can mean that you don’t fall foul of any rules while at the same time possibly saving yourself from unnecessary expense.
The most common form of investing is saving in a bank account or similar product that pays interest. Saving is sensible and appropriate for most people regardless of income level. The returns on traditional savings products tend to be fairly limited, however which is why some investors are willing to risk some of their capital.
Everybody needs somewhere to live, and many people have found that purchasing their own home has been a good move financially. Investing in property of course goes far beyond this.
The popularity of buying property to make rental income on it is one of the factors that has driven growth in house prices. Being a residential landlord has to be quite ‘hands on’ unless you delegate some of the property management to a letting agency. These agencies can take a considerable chunk out of your profitability.
Known as ‘stocks and shares’, equities can prove to be highly lucrative investments. There are both long and short term strategies to make money in this market. It is very easy to begin this kind of investing, as simple as opening up an onlinetrading account, but mastering it is a skill which takes time.
Investing in a business requires many different things, but the first two prerequisites are money and time.
Starting a business is widely regarded as a very high risk investment. A great proportion of business ventures fail. Successful business people have often experienced their fair share of failures before they can make something work.
The rewards for starting a business that then becomes successful can be astronomical. Getting in on the ground floor has made fortunes for some. Though success stories of start-up founders becoming millionaires are not the norm, they definitely can and do happen.
Pamela Chimbonda writes in association with Alliance Trust Savings. This should not be considered as financial advice.