July 21, 2021, | AtoZ Markets – The year 2020 received harsh criticism of financial literacy for everyone, without exception. Those who are used to spending all their money and living from paycheck to paycheck find themselves in a difficult situation. People who carefully monitor their finances and regularly save and know how to invest money, at least a small portion of their income have appreciated how important it is to save for the rainy days.
Money is not just a means of providing for life, but also a financial instrument that generates income. Keeping money at home is unprofitable: inflation depreciates savings, goods, and services become more expensive.
Today, everyone wants to find a monthly passive income option or a way to save and increase existing funds. So what is the best way to invest money, both small and big sum?
Read on as this article will help you know how to invest money in 2021.
Preparing for investment
It is not easy for a beginner to figure out what is better to invest the money earned. Before looking for options for profitable investments, you need to put your finances in order.
- Prepare a "safety cushion" - the amount on which you can easily live for 2 or 3 months if you lose your job.
- Determine how much you can painlessly save each month. This will be the amount that you will invest. This is usually 15% of income.
- Decide how much you are willing to take risks. There is an unspoken rule in the investment world: the higher the risk, the higher the return. If you do not have the time and energy for deep analytics, choose less profitable, but at the same time safer options.
So, now you can consider the popular ways of investing money in the UK.
Where and how to invest money
Another investment rule: don't put all your eggs in one basket. This means that when choosing where it is best to invest money, it is worth stopping at 2 or 3 options. So, if you lose money on one investment, you will probably compensate this amount on another.
That said, lets show how and where to invest money in this year.
Stocks and bonds
Shares and bonds are securities of various private or state-owned enterprises, which can subsequently be resold or receive regular payments on them - dividends. With proper management of such assets, they can provide a much higher income compared to a conventional deposit, but the risks of losing funds in this case also increase. Unlike a deposit, where in the worst case, you can simply exit with the same amount that you invested, when investing, you can lose part of the funds.
Please note: Investing in securities requires certain skills and knowledge, so it is better to entrust the purchase and management of them to professional UK brokers.
Another option is to open a brokerage account, which will allow the client to independently enter the stock exchange and buy shares of the companies he is interested in. This option is more suitable for those who have already figured out the topic of investing.
Investing in Bitcoin
Do you want something more exciting with your money? Investing in Bitcoin can be very beneficial. Certainly, when you actively trade, you can take full advantage of the latest price fluctuations. You have full control over your investments. Some people now call Bitcoin the “digital gold”. The currency could eventually replace traditional currencies such as the dollar and euro as a means of payment. Bitcoin continues to break records. Some major banks believe that a bitcoin could become worth $100,000 or even $1,000,000 in the future.
CFD
CFDs are derivative financial products that allow you to make profits, even if the price of the same is at a loss. Conceptually this would not be possible, but with CFDs, certain rules are, in some way, overturned.
CFDs are literally contracts for difference and, they allow you to earn money both when the stock goes up and when it goes down. The important thing is to predict the performance of the stock, the trend in the short term. Unlike shares, these do not provide for the distribution of dividends, but unlike the latter, they can generate profits even if the stock is at a loss.
Note: Investing in leveraged products such as CFDs involves a significant risk of loss and may not be suitable for all investors. 83% of retail investor accounts lose money trading CFDs.
Mutual funds
Mutual funds or mutual funds are similar to buying securities. The investor is invited to purchase a share - part of the fund's property.
The principle of investing in mutual funds is as follows.
- All collected funds are transferred to the manager.
- The manager invests money in securities.
Since the manager receives a percentage of the profit, he is personally interested in the most profitable investments. Before investing, it is important to know some of the features of mutual funds:
- Open-ended funds - you can buy or sell a share at any time;
- Interval - financing, and withdrawal of the profit is carried out at a certain time;
- Closed mutual funds - you can buy a share only at the time the fund is formed, and exit only at the end of their work.
In addition, according to the chosen strategy, mutual funds are divided into conservative, aggressive and moderate. Experts advise distributing investments among several funds to diversify risks.
Precious metals
Talking about how to invest money, precious metals - gold, platinum, silver, and palladium - remain in value even during major financial crises, so many people prefer to invest part of their money in this asset. It can be difficult even for a specialist to predict the profitability of such investments with a guarantee - the risks are about the same as when investing in stocks: if the price falls, you lose money. The purchase of precious metals will bring income if the client is willing to invest his money for a sufficiently long period - on average, from 5 to 15 years.
You can buy traditional bars or coins, or open an impersonal metal account with a bank. On such an account, information about the metal purchased by the client will be displayed, but the metal itself will not be handed over. This method of investing money is convenient because you can start investing with a very small amount of metal without having to immediately spend a large amount to buy a whole bar.
Bank deposits
A bank deposit is a classic way to save funds and receive a guaranteed income. The main advantage of deposits is their safety: even if the deposit is closed early, the interest will be paid at the demand rate, you cannot lose some part, like when investing or buying currencies. In addition, all bank deposits are insured. If the bank's license is suddenly revoked or it stops working for another reason, you can get compensation.
However, it should be borne in mind that classic deposits are unlikely to bring you significant income. Demand deposits, as a rule, have a lower rate than term deposits. The highest profitability is shown by deposits with a ban on the movement of funds during the entire period and a large opening amount. To get the most out of your investments, open a deposit with replenishment without withdrawal, with capitalization on the deposit account and try not to withdraw funds until the end of the term. The longer the placement period, the higher the percentage.
Real estate
Another common way to save and increase your funds is to invest them in real estate. It requires equity or borrowed funds, which implies competent planning, market analysis, and a stable financial position of the investor. You can make money on real estate in the following ways:
- Purchase for subsequent resale. In this case, you can buy real estate at the construction stage, when the cost per square meter is minimal, and sell the finished object at the maximum price. But real estate cannot be sold in one day, and in a difficult situation with a reduction in income, it is possible to get rid of such assets quickly only if the price is significantly lower than the market. With an increase in construction time, excess supply, or a decrease in buyers' demand for a specific object or residential complex, there will also be problems with the return on investment. Plus, against the background of a decrease in mortgage rates for new buildings, many buyers refuse to purchase real estate, not from developers, which also negatively affects the total profit on the sale.
- Buying residential or commercial real estate for rent. This method will allow you to receive monthly passive income for a long time, as well as retain the opportunity, if necessary, to sell this object and get additional free funds. With this investment option, it is important to maintain a balance of income and expenses. You can only lease a finished object, and if you buy it at the construction stage and with the involvement of borrowed funds, the return on investment will be long. Even when buying a ready-to-use facility for its own funds, there are risks and additional costs. Repair may be required, the tenant will turn out to be unreliable, the object itself has been chosen incorrectly and is not in demand.
- Investments in real estate. This is participation in mutual funds or closed investment projects that raise money for residential and commercial construction. Investments in the construction of trade and tourist infrastructure in large cities show a high profitability, but the profitability of such an investment directly depends on the volume of own funds and the liquidity of the selected object.
When investing in real estate, it is worth calculating the possible risks - for example, the risk of bankruptcy of the developer, as well as analyzing the state of the housing market and, finally, determining the liquidity of the selected real estate - the ability to sell it quickly and profitably.
Investing in startups
Do you want to help starting entrepreneurs realize their dream and at the same time achieve a good return by investing wisely in startups?
The rapidly developing sphere of small business is trying to attract as much private money as possible, in return offering its investors a good income. Investing in a promising business project, which will subsequently actively grow and expand its client base, can bring significant profits. However, this type of investment is subject to standard risks: the company may go bankrupt, turn out to be not as profitable as it was promised in advance, or simply close. You can invest in such projects only when you are confident in their reliability, legal purity, and liquidity.
There are two ways to invest in a small business - by investing money through crowdfunding platforms or by entering into a share with the owner. The use of online lending platforms in some cases can protect an investor from losing funds, but at the same time, it does not guarantee him a full return on the invested amount or an extremely high profitability. Projects in this category do not have insurance and do not protect the participant in any way. While deposits in banks are profitable and insured, when investing in a private business, you assume all the risks.
The video below shows 5 ways on how to invest money in 2021.
Where to invest money in 2021 - Expert advice
Everyone knows that money has to work. Storing funds in a box, under a mattress, or simply in the account, in the end, leads to losses due to inflation. Experts believe that the most profitable investment in comparison with the above is real estate. Over time, it pays for itself and begins to generate income. Several one-room apartments or small houses in the resort area can end up giving you the opportunity not to work at all.
How to invest money - Conclusion
Now that you know how to invest money and the different investment options available today, you can choose the most promising one suitable for you. The sooner you place finances, the faster you will start receiving stable passive income.
In order to reduce risks, do not finance only one project, break free funds into several parts with different degrees of profitability and develop a personal strategy for investing in online programs on the Internet.
Please note, investing is never without risks. Never invest with money that you may need in the short term.
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