If you have capital to invest, you’ll want to ensure you maximise your returns and make savvy financial decisions. Of course, the risk of investing your money is that you could get a lower return than your initial outlay or, worse still, you could lose your capital altogether. That’s why it’s so important to make the right investment decisions.
By matching the level of risk you’re comfortable with and the right investment opportunity, for example, you can potentially minimise losses and add an extra layer of protection to your investments. While a low-risk investment opportunity isn’t ‘no risk’, it does make it less likely that you’ll lose your funds. On the flip side, lower-risk investments do tend to offer a more modest return.
If you want to make maximum gains, then you might need to increase the amount of risk you’re willing to take. Some of the most successful investors are those who have been willing to risk losing their capital, but this can cut both ways. While high-risk investments can lead to big rewards, there’s a greater chance that you won’t get a return at all.
As you can see, choosing the right investment option can be tricky. Fortunately, help is at hand. To get a better idea of the investments that might be right for you, take a look at these five ways you can grow your capital:
1. Stocks and Shares
When people consider making an investment, they tend to automatically think about the stock market. While it’s true that investing in stocks and shares can net you a good return, there are numerous different ways to grow capital using the stock market.
You can buy shares in a specific company, for example, and hope to make a profit if the business performs well. Alternatively, you can use spread betting to profit from a company’s performance, regardless of whether it’s good or bad. You may even want to explore the FOREX market if you’re interested in investing in currency.
Although many people invest in stocks and shares, they usually rely on an investment manager to do it for them. You could join a fund via your bank or pension provider, for example. Alternatively, you could appoint a specific investment adviser to manage your personal investment portfolio. Using a professional investment manager allows you to access expertise that you may not have and means you don’t have to keep an eye on the market at all times for any changes.
If you do choose to handle your own stock market investments, do be aware that there can be costs involved. You may need to pay a set fee or a commission in order to make trades, for example. You’ll need to factor these costs into your plans so that they don’t devalue your overall return.
Cryptocurrency is a relatively new form of investment but it’s one that’s increasingly popular. The value of every digital currency can rise and fall at any time. In fact, it’s almost constantly changing. By buying digital currency from an exchange and selling at the right time, you stand to make a good profit.
However, the volatility of the cryptocurrency markets makes it a high-risk investment. Unlike traditional currency, digital currencies aren’t backed by governments, which means that their value can rise or fall dramatically in a short space of time.
Furthermore, it’s important to do your research and buy from a reputable exchange if you do decide that this is the right type of investment for you. When purchasing digital currency, it’s held in a virtual wallet. In a bid to keep these secure, you’ll have a unique key or password that you need to use to access your funds. If you lose this, you’ll have no way to access or reclaim your currency, so there’s more than one way to lose your investment!
3. Automated Investments
If you want to invest your capital but you don’t have much experience, automated investments could be an appropriate option. Similarly, if you’re a seasoned investor who wants to maximise their capital without incurring hefty fees, automated investments may present an ideal opportunity.
Automated investments rely on robo advisors and algorithms to find the right opportunities for you. Of course, the first question budding investors ask is, what is a robo advisor? In simple terms, a robo advisor is specialised software that take the place of an investment manager. The robo advisor asks you a series of questions and then applies advanced algorithms to identify suitable investment options. With Wealthsimple, for example, you can incorporate automated investments into your portfolio to invest in index exchange-traded funds (ETFs), bonds, and other financial products. This helps you take advantage of low fees and 24/7 accessibility.
One of the major benefits of using automated investments is the ability to spread your capital across various markets. This reduces your overall risk and can help to safeguard your financial reserves. By diversifying your investment portfolio in this way, you can avoid putting all of your eggs into one basket.
In addition to this, using a robo advisor to build a portfolio can be much cheaper than appointing an investment or wealth manager. With fewer fees and lower commissions, you’ll keep more of your returns and potentially make more money.
Generally, robo advisors are best used if you want to invest over the long-term. By mirroring the market, they attempt to build wealth gradually, rather than producing major gains overnight. If you’re looking for low-cost, long-term investment opportunities, automating your portfolio could be a great way to grow your capital.
Buying your own home is certainly an investment but buying a second property gives you the opportunity to generate rental income by leasing it out to tenants. As well as deriving on-going rental income from a buy-to-let property, you could also grow your capital if the value of the property increases over time.
Alternatively, you may want to invest in property by buying a building, renovating it, and selling it on quickly. Commonly known as ‘property flipping’, this can allow you to make a substantial profit in a relatively short space of time, providing you can access the skills and resources you need at a cost-effective rate.
Many people choose to invest in property because they believe it carries a lower risk than other forms of investment. Although this can be true, investing in property doesn’t guarantee a return. Property prices can fall, as well as rise, so you’ll need to be savvy when it comes to choosing what and when to buy.
If you’re able to make a profit on your first property investment, however, it can give you the funding you need to finance a second property purchase. Over time, it’s possible to expand your portfolio to include a range of different properties, such as commercial units, family homes or apartments. This diversifies your investment, which can lower your overall risk. Similarly, purchasing properties in different towns or regions can help you to avoid potential losses.
It’s important to be aware that buying and selling property can incur fees, so be sure to incorporate these into your calculations. Additionally, there may be tax implications when it comes to selling property, so you may want to see professional advice in order to reduce your tax liability as much as possible.
5. Peer-to-Peer Lending
Peer-to-peer (P2P) lending gives you the opportunity to make a return by lending your funds to other people. They will borrow a set amount and make regular repayments. As well as repaying the capital they’ve borrowed, they will also pay a pre-agreed amount of interest, which is how you can make a profit.
Although P2P lending can be a good investment opportunity, it’s important to find a P2P platform you can trust. Some P2P communities have stricter lending criteria than others, for example, so this could be a way to lower your risk. Alternatively, you may want to try and boost your returns by lending to high-risk borrowers, as these agreements normally incorporate a higher rate of interest.
Before you decide to invest via P2P lending, do check what rules the platform has regarding missed repayments. In the event that the borrower doesn’t repay their loan, you could lose your capital unless the platform has safeguards in place. However, choosing to lend smaller sums to multiple borrowers can help you to mitigate this risk.
Making Your First Investment
Choosing to invest capital can be a sensible way to manage your money. However, it’s important to do your research and take your time deciding what type of investment is right for you. Seeking professional assistance from a financial advisor may be the first step to helping you build an investment portfolio, so don’t hesitate to get expert advice if you feel it would be beneficial.
By evaluating a variety of factors, such as how much you want to invest, when you might need to access your funds, and what level of return you want to make, you can begin to identify the investment opportunities that are most suited to your needs. By doing so, you can make an informed decision and take steps to successfully grow your capital.