With low interest rates set to continue, many people are instead looking to invest their savings. Most bank accounts are delivering interest below the rate of inflation, so investment is not just a way to get more money from savings but to avoid depreciation.
There are a number of different options for investment, and each comes with its own advantages and risks. Some of the most common options for investment are:
Stocks and Shares
Stocks and shares are a popular option for investment. Stocks up to a certain value can be further boosted by placing them into a stocks and shares ISA, resulting in tax-free returns. However, the key risk is that stock values can go up as well as down. The degree of risk depends in part on where you invest. Some stocks are relatively consistent performers, others a prone to greater variation providing greater potential for profit but also greater risk.
Stocks and shares can potentially be a very profitable investment option, but it can be a high-maintenance one. This is especially true if you want to truly maximise returns and minimise risks, which will involve keeping a close eye on your portfolio and moving your investments around to catch value increases and avoid price drops. Ultimately, the stock market can be an excellent investment if it is right for you, but should not be entered into on a whim.
Property is also a popular choice for investment, particularly buy-to-let. Your original investment remains tied up in the property as equity, recoverable if you ever decide to sell, and you earn income in the form of rent. If the value of the property increases, you also get an effective increase in your assets as your investment becomes more valuable.
A good property in a good area with strong demand can be a very safe investment option. Much of the time, it will also be a low-maintenance source of income. However, there will be periods of higher-maintenance. Whenever a tenant leaves, you will need to find a new occupant. When work needs to be done on the property or there are problems, this will also require maintenance. There can also be unexpected difficulties and costs, for example if problems with the property arise that call for costly work or you have problem tenants. There is also a danger that the value of the property may decrease, depreciating the value of your original investment.