Investment is the allocation of funds to assets that aim to generate returns over time to meet financial goals. It differs from storing money in a savings account or paying into a pension scheme that may only offer low returns and does not give you the opportunity to take advantage of the power of compounding or market appreciation.
The key benefits of investing include helping to build wealth, beat inflation, fund long-term financial goals and secure a more financially comfortable retirement. It also gives the opportunity to diversify a portfolio and reduce exposure to any risks.
To invest well, start by understanding why you’re investing and what your goals are. Then choose investments that are right for you. This will depend on your investment horizon, risk tolerance and your capacity to ride out short-term market fluctuations.
There are many types of investments available – the most common are stocks, bonds and commodities. Each has different characteristics and risks. Stocks are small parts of publicly-traded companies whose value can rise or fall depending on a range of factors. Bonds are loans to governments, municipalities and businesses that pay interest over a fixed period. And commodities are raw materials like oil, gas and metals that can be used for various purposes.
Alternative investments – such as private equity, infrastructure and hedge funds – are also becoming increasingly popular. These are typically offered in fund formats accessible to retail investors and are intended to provide capital growth or income (dividends). They are often more volatile than mainstream investments, but can offer higher returns.
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