Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years
Banks have fallen out of favour in recent times, not least because of the economic crisis.
In the past, savings accounts were the location of choice for spare cash, but with interest rates still at rock bottom, investing wisely might be the best way to make your money go further.
There are a number of investment options, some more risky than others. This week I’m looking at where to put your money for a rainy day.
In the Stocks
The stock market may have had a bad press, but if you approach with caution, there is still some serious profit to be made. UK shares managed to return an annual average of 7.2% between 1957 and 2007, compared to just 2% for cash accounts, according the 2008 Barclays Capital Equity-Gilt study.
What are shares? Owning shares means that you own a little bit of a company and a right to a proportion of that company’s profits. The more shares you own, the bigger the stake. Shares make money in two ways, through their value increasing overtime, or capital growth, and also through dividends. These are payments taken from the profits that the company makes to its shareholders – the more shares you own, the bigger the dividend.
It can be risky investing in the stock market and it is true that to enjoy bigger rewards, you have to take bigger risks – the stock market crash of 2008 being a very recent cautionary tale of where risks have gone wrong.
Over the long term however, all figures show that shares are a better bet on average than other forms of investment. What’s key is that this is not a quick way to make cash, so any money used should be ‘spare’, available to sit there until such a time that share prices increase enough to make a profit.
Investing in funds
Putting money into funds is often the route recommended to small investors. These are typically unit trusts or open ended investment companies. Essentially, investors’ cash is pooled and put into shares, bonds or other funds.
As the fund invests in lots of different companies, the risk of you losing all your money is reduced compared with investing on your own.
There are around 2,000 funds to choose from, divided in different types or sectors. If you go direct to the fund company, you’ll lose up to 5.5% of your investment as an initial charge. If you don’t want help from a financial advisor, it is cheaper and easier to go through a fund supermarket or an ‘execution-only’ broker.
>> For a guide to stocks, shares and investment funds, visit: http://www.thisismoney.co.uk/investing
Property profit
Despite the housing market troubles, investing in property is still a good bet. Prices are low at the moment, but starting to rise, so, like stocks and shares if you’re willing to wait, there’s more profit to be had than putting cash in a bank. Getting a mortgage is still quite tricky and for anyone living in London, house prices mean most can’t buy on their own.
For people looking for investment partners, newly launched PropertyMates http://www.propertymates.co.uk/ is a great new website that matches potential buyers as well as landlords and house sharers. You can search for potential investors on the website, as well as meet them at PropertyMates parties, the first of which is being held at Gudge Street in London, on 12th July.
Making your money go further is something we’re all keen to do and while investment of any kind carries some risk, if you choose wisely and play the waiting game, those pennies might just turn into pounds, lots of them!
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