Money is tight right now, and for a lot of people too. Indeed, for a great majority of households in the UK, money has been tight for a long while – the result of cascading national and international crises, from pandemics to energy shortages and beyond. Supermarket shops are more expensive than ever, energy bills higher than ever, and life goals being put on hold accordingly.
As someone struggling with finding their footing in this difficult economy, you’ll know all to well the outsized value of having a little money to hand. You’ll also have some knowledge of what you’re meant to do with your money to make it last – namely, save it. But saving is a passive practice, and one that does not bring the long-term security it once did. Investing is the answer, and it’s growing in popularity as a financial practice. Here’s how to make it work for you.
1. Why Investing Matters More Than Ever
Saving is, and always will be, a fundamentally necessary part of any personal financial plan. Long-term savings accounts are good for passive financial growth – but, crucially, they aren’t great. And they shouldn’t be the sole thing any individual relies on for long-term financial security.
This is because, over time, inflation decreases the purchasing power of money, generally at a greater rate than the accrual of interest on that same money. This is where investing matters. Actively investing your money enables you to grow your money faster than the rate of inflation, ensuring strong long-term financial stability.
2. Understanding Different Investment Options
There are many ways to start investing, and more in recent years with thanks to the development of digital banking and asset management. The most obvious form of investment, though, is property. Everyone understands the value of owning property, and the importance of getting on the property ladder; property values outstrip inflation handily, and represent a safe store of value regardless.
The same principles apply, in the shorter term, to stocks, shares and bonds. In buying stocks and shares, you are investing in the future of a business or commodity. This brings greater potential for returns, but also a greater level of risk; what if the business fails?
3. Balancing Risk and Reward in Today’s Market
Indeed, risk is the most important consideration when it comes to starting on investing your money. There are many variables that can impact the risk potential of a given business or commodity, from internal business failures to geopolitical instabilities. If you intend to actively invest in individual companies or assets, you need to do your homework.
Risk management can be easier than this, though. In taking any form of stock market course, you’ll learn the importance of informed decision-making, but more importantly of diversification. Putting all your eggs in one financial basket is more of a lottery than anything; investing broadly in a portfolio of businesses ensures the losses of one do not majoritively impact your investments more broadly.
For anyone looking to start their investment journey from the very basics, a strong first step is to invest in a global ETF through a Stocks and Shares ISA. This ensures tax-free gains up to a pre-defined limit, and inflation-beating returns through a balanced portfolio that represents the growth of the global economy, rather than the growth of individual businesses.
