How investments work

Investments provide you with an opportunity to make the most of your savings.

Investing your savings can make you extra money, but there is no guarantee. Some investments could lose you some or all of your money. Generally speaking, you stand to make more money from an investment, but you also have a higher risk of losing money.

You pick your investment depending on what balance of risk you are happy with; this is called the ‘risk/reward ratio’. The higher the risk, the higher the return on your investment.

Investments are often financial products offered by lending banks, online portals or arranged by financial advisors. Some examples of investment products include stocks, options, futures and retirement plans.

There are several ‘alternative investment’ options available. These vary widely from online Crowd Share schemes to assets such as property and fine art.

How many investments should I have?

According to wealth giants Forbes, the right number of investments can range between one and forty. The truth is, there is no correct answer here, and it comes down to you.

Things to consider might be:

How much do you have to invest?

The less capital you have to invest, the fewer investments you should have. There’s no point spreading your money too thinly across investments. That’s because various charges apply to many investment transactions.

How experienced are you?

The investment sector is growing all the time and offers hundreds of thousands of opportunities.  

If you are new to investing, take it slow. Resist the temptation to expand your portfolio into “exciting” new sectors until you are fully informed of the risks.

How much time do you have to give to your investments?

Because investments work best over the long-term, leaving them alone is often the best option. But if you have many investments, you will still need to keep an eye on all of them. So do not overburden yourself. 

You can hire professional help – in the form of an IFA to give you general guidance or buy into an actively-managed fund and have a professional, qualified, pro stock-picker make decisions for you. But always remember that your investments are your money and nobody else’s. Investing is about taking responsibility. So do not take on too much.

Which investments are the safest and which are the riskiest?

No investment is entirely safe but some are riskier than others.

Investopedia says that equities and equity-based investments such as mutual funds present more of a risk due to price fluctuations in the market.