The 6 things you must consider before Investing
Sadly the perfect investment does NOT exist. If it did then we definitely wouldn’t tell anyone!
With bank deposits paying next to nothing it is a serious issue as to what to do with any spare cash other than ‘stuff it under the mattress’ or go and spend it on luxuries.
The Best Way to Invest Money…
Having many years experience in making both good and bad investments, we have discovered that the best way to invest money is to try and ‘tick’ as many of our six criteria as possible. Good investing is something that delivers a decent return over your desired time frame, so before making a decision you should consider all of the following:
Is it easy to trade?
This is probably the biggest downfall in having a ‘buy-to–let’ investment. Considered by most people to be a one-way bet with a solid asset (property) and a good return (yield/rent) plus the probability of capital gain at some future stage. The problem is that if you might need the money back quickly then this is not the investment for you. When you want to sell you have to provide tenants with notice and then sell the property which even in a rising property market will likely take months. You can also expect that when you want to sell it will just happen to be the time when lots of other people are selling.
Is it easy to value?
This is the problem with some of the more esoteric investments like fine art or wine. Like any investment they are only worth what someone is willing to pay at the time when you want to sell. At least with most shares for example, you can generally see what they are worth on any particular day.
Buying and selling houses for example has quite a high cost when you factor in all the fees. The same also applies to many other difficult to value investments. There are also on-going maintenance costs plus security and insurance issues which might apply to valuables like gold, diamonds, fine art and so on.
Unfortunately this is another problem with buy-to-let investments unless you own lots of different properties and can sell one at a time if needed. It is quite difficult to sell half a house but if you own say a thousand shares in a company you can probably sell 50, 100, 200 at a time.
Is it Tax efficient?
Is it possible to take advantage of any tax breaks that are available now (eg ISAs) or may become available in the future? At least try and ensure that you won’t be penalised by additional tax when you come to sell.
Balance of investments…
Everyone knows that you shouldn’t put all your financial ‘eggs’ in one basket. Always try and spread your investments across a range of assets with a range of different risks. There is no such thing as a low risk high return investment. There is direct correlation between higher levels of risk and greater levels of return – anyone who says otherwise is a liar. A range of investments (either directly or through funds) could include shares, bonds, commodities, currencies, property and of course some of it in cash. Always seek professional advice from an independent financial adviser, solicitor and/or accountant before you invest.
So all you need to do now is find the perfect investment… and that’s the difficult part.
If you have any comments on this article, especially if you disagree with our best ways to invest money, please get in touch.