Are you thinking of investing?

September 28, 2021

Recent research released by the Competition and Consumer Protection Commission (CCPC) has found that just over 1 in 3 (36%) adults have an investment product.

As deposit rates continue to fall, more people are considering investing, with 1 in 6 respondents (16%) planning to make an investment in the next 12 months. Before making the decision to invest, it is important to consider getting financial advice to help decide what type of investment is most suitable to your needs. Investment products can be complicated, returns are not guaranteed and you can lose some or all of your money. Read on to find out what you need to consider before deciding to invest.

Consider your options

When it comes to investing there are many options available to consumers. You can invest through a financial provider such as a bank, a stockbroking firm, insurance company or through an online trading platform. It is important to consider all of your options before deciding where to go. Financial providers, like banks, are often tied to a particular company. This means that they can only offer certain investment products, or only advise you on investment products from the company they are tied to. A stockbroking firm, on the other hand, can offer and advise on a range of investment products from across the market. More information on the different ways to invest can be found here.

Understanding the risk

Every investment has an element of risk, but you need to be comfortable with the amount of risk you are taking on. You should consider if you can afford to lose money and what your attitude to risk is. Most financial providers will assess your attitude to risk (your risk appetite) and the importance of capital security to you. You should only be offered investment products in line with your risk attitude.

If you choose to invest through trading platforms, you should be aware that the majority of these do not offer advice to you before you invest your money and there is no assessment of whether the investment is suitable for you and the level of risk you are willing to take. This can result in you losing some or all of your money or investing in a product that is not suitable to your needs.

Regardless of risk, the rule of thumb when it comes to investing is, ‘do not invest what you are not prepared to lose’. Investing can be a way to make your money work for you but it needs to be in an investment that is suitable to your needs and risk appetite.

Types of investment products available

There are many different types of investment products, the following are examples of traditional and alternative types of investment products.

Traditional investment products

Shares: when you buy a company share you are buying a small percentage of the company. The value of the share will fluctuate with the value of the company. Shares can be bought through a broker, through a unit linked fund or through online trading platforms. There are two ways to earn money from shares:

  1. If you hold onto them until the market value rises and then sell at a profit.
  2. Dividend: many companies pay out a dividend if the company makes a profit at the end of the year.

Bonds: buying a bond means that you are lending a company or government money that will be paid back to you, plus interest, at a later date. Think of it as an I.O.U. from the company or government. There are two types of bonds that can be invested in: government bonds and corporate bonds. You can buy a bond issued by the government or company independently or you can buy bonds through a collective investment fund. Once issued, bonds can be sold on the stock market.

Property: there are two ways that you can invest in property. The first is directly, meaning that you purchase a residential property, commercial property or holiday home that will be used to earn investment income such as rent. An alternative way to invest in property is through a collective investment fund. With a collective investment fund, as the property value rises so does your investment.

Alternative types of investment

Crypto-currencies: these are digital assets that are designed to be used as a medium of exchange. However, unlike traditional currency, the supply of crypto-currency is not controlled by central banks and therefore cannot be regulated.

Crowdfunding: This is a way for individuals or businesses to raise money for a project through online investment from multiple individuals. This method of raising money avoids the need for a bank loan. If you invest in crowdfunding, you may make a return or receive some reward, however, this is not guaranteed. Investing this way can be risky, so before investing, make sure you can afford to potentially lose the amount you invest.

View more information on the various types of investments.

Online trading platforms

Online trading platforms allow you to create trading accounts. These accounts facilitate easy access to buy investments directly in a wide variety of company shares, commodities and crypto-currencies. These platforms offer an alternative to the traditional ways of investing for example, through a stock broker, bank etc.

These online trading platforms usually cost less than traditional ways of investing, however the majority of these online trading platforms operate on an ‘execution-only’ basis. This means that no advice will be provided to you before you invest your money. There is no assessment of whether the investment is suitable for you and the level of risk you are willing to take. While this may be suitable for consumers with knowledge of investments, it is not suitable for everyone. More information can be found here.

Ethical and sustainable investments

Each person will have their own view about the types of industry they are comfortable investing in. Ethical investing lets you select investment options which claim to meet certain ethical and sustainable principles. For example, you may want to invest in green technologies to fight climate change. These types of investments have become more popular due to the increased demand from investors for greater transparency around where their money is being invested.

You can find out more about investing in our dedicated Money Hub.

 

 

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