All the places you can put your money
If you’ve reached the point where you know you want to invest, rather than just keep your cash in a bank account, you’ll encounter a bewildering number of options. In this pack we’ll walk you through the different places “normal” investors can stick their money in search of a return.
What do you mean “normal”? Well, many governments don’t allow so-called retail investors (average members of the public) to put their savings just anywhere. Places the authorities consider especially risky – like hedge funds and venture capital funds – are only open to sophisticated investors (sometimes called accredited investors in the US). That doesn’t mean top hats, spats and tails… 🧐 Instead, it’s basically those rich enough to withstand a large financial hit if things go wrong without starving to death.
So where can we mere mortals put our money? The main options are:
• A traditional fund, which will take investment decisions for you in exchange for an annual fee of roughly 1%-2% of your money.
• A robo-advisor – like Wealthsimple or Moneyfarm – that uses computers to perform a lot of the basic fund-management tasks more cheaply and charges a fee of maybe 0.4%-0.7%.
• A “tracker” fund that just follows the movements of a market (the UK’s FTSE 100 stock index, for instance). Usually the lowest-cost choice.
• Opening an account with a broker and selecting your own investments: for example buying single stocks, gold, or an exchange-traded fund (ETF) tracking US tech shares. You’ll generally be charged for each trade.
• Getting funky and putting money in an alternative investment: perhaps receiving some shares in return for crowdfunding a smaller company that isn’t listed on public stock markets.
You may have noticed that – as with so much in life – there’s a broad trade-off between service or convenience and fees. And it’s worth remembering that you can (or perhaps even should!) spread your investments across several different places.
Over the next four sessions of this pack we’ll run through these options in more detail. When you’re ready, there are reviews of loads of different investment providers available right here in this app. Pick the ones you like the sound of – and, hey presto, you’re an investor. You’ll be donning that top hat in no time...
What else should I bear in mind? Always remember these basic rules of investing:
1️⃣ An investment pays you a return as compensation for the risk of losing money. The higher the return, the higher the risk – almost without exception.
2️⃣ Small differences in annual returns become amplified when compounded over many years. The same goes for fees.
3️⃣ Even if you leave your money in cash, the wicked scourge of inflation will erode its value over time.
4️⃣ Building a balanced portfolio of investments means losses in any one area are more likely to be offset by gains elsewhere.
Make sure you’ve read our Investing Basics pack if all of this is new to you. You won’t regret it 😉
That’s all for now. Come back for the next session and we’ll kick off with those funky alternative investments.
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