One of the things that financial planning services in Chester or anywhere else will offer is reliable guidance over investing your money. Investment can be a very good way of both protecting your existing savings by helping you to legally reduce the amount of tax that you have to pay on them, but also of growing the cash that you have at your disposal.
That is beneficial whether you own a small business of your own or simply want to start preparing for eventual retirement. The first step in the investment process will be to understand what sort of investment is the best for you though, because there is more than one type available.
These are the main ones to consider.
Stocks
This is a type of investment that you are likely to have heard of, although you may not know exactly what investing in stocks involves. Essentially businesses sell company stock as a way of raising cash, although start-ups and established ones usually do so for different reasons.
For new companies, selling stock is generally a way of raising the money needed to finance their launch successfully. For more established businesses, it tends to be a method of generating the money that they require to expand.
Either amounts to the same thing for those buying it though, as they are acquiring part of the company in question, with the stock usually sold as shares. There are two kinds of stock investment that you can make.
• Preferred stock
• Common stock
The key difference between them is that buying common stock in a company entitles you to a say in its running, via a vote on important issues. Preferred stock does not entitle you to that, but it will give you income priority when it comes to the payment of dividends to shareholders.
Which type to invest in is something you can decide on with your wealth manager, but it may depend on how solidly run the company is considered to be. Stock investments can be made via an individual savings account (ISA) and tax can be avoided on investments of £20,000 per year or below.
If you choose which companies to buy into carefully, becoming a shareholder is a type of investment that can produce consistent and lucrative returns.
Bonds
This is a type of investment that involves lending cash to an organisation such as a private company that it commits to paying back after a set period, plus interest. It is in those interest payments that the potential profits lie.
The degree of interest you earn on bond investments is determined when the loan is first agreed. Many investors consider bonds to provide more reliable returns than stock investments, but the amount of money made on them tends to be less than with stock in most cases.
Property
This can mean investing in either commercial or residential property that will be rented out, providing a regular monthly income for the owner. Again, this can be a good way of growing your income through investing.
Wealth managers and financial advisors often encourage their clients to invest in property through a property fund, which will often mean multiple such investments rather than a single one.
These can either be direct or indirect, which is something to discuss with your advisor. Of course, property can go down as well as up in value, so there are some risks involved as well, but that is true of every kind of investment.
If you are the sole owner of the property, you will also be liable for maintenance costs, so that should be factored in when deciding.
Cash equivalents
This type of investment covers everything from money market investments to savings accounts and certificates of deposit (CDs). One major benefit that cash equivalent investments have is that the level of risk is usually a lot lower than it is with property or stock purchases.
There is less chance of suffering a major financial hit as a result of this sort of investment. Cash equivalents also tend to deliver stable and consistent returns to the investor, similar to bonds.
There are downsides to them as well though. The actual returns are a lot less than they can potentially be with something like corporate stock purchases and cash equivalent investments are usually liable for taxation.
That does not make them worthless, but it does mean that they will not be suitable for more long-term projects like retirement planning. This is because inflation over time will eat up the returns made on them.
Most advisors or wealth managers would encourage you to consider cash equivalent investments alongside other ones that promise higher returns. They can be useful for diversifying an investment portfolio, though.
These are the main types of investment that are available. Speak to experienced financial experts for more detailed guidance.
