For many, the idea of investing money instead of placing it in a savings account or keeping it in cash seems like a gamble, and it’s important to be aware that capital is at risk. CEO of global trading company, Trade Nation, David Morrison recently spoke to Express.co.uk, sharing some considerations first-time investors may want to make.
“It’s a sad fact of life that most people struggle to build a pot of savings, and that’s a horribly precarious position to be in,” Mr Morrison said of the current economic climate.
“This isn’t just an issue of planning for retirement but providing enough for ourselves and our families to deal with everyday expenditures.
“The difference between inflation which erodes the value of money over time and interest rates, represents a significant loss for savers over a year or so.
“Of course, low interest rates aren’t anything new,” he added.
While lockdown and the subsequent fiscal stimuli provided by the government have ensured that inflation won’t be making a U-turn anytime soon, what does he suggest could be done to make one’s money go further?
“Firstly, cut your outgoings to build up your savings. Despite inflation and dismal interest rates, it’s vitally important to have cash savings to keep in reserve,” said Mr Morrison.
COVID-19 has showcased how useful and necessary it is to have a reserve of money one can withdraw if needed.
“There are so many uncertainties in life, and we can’t prepare for these. But with a bit of effort, and by making a few sacrifices, we can create a nest egg that you can draw on immediately if needed.”
Investing and risk
Mr Morrison claimed: “Now we can try to beat inflation, but we can’t do this without taking on risk.”
For those who decide investing is right for them, how do they go about it?
“The first port of call is the stock market, where you can buy shares in businesses and profit from their successes,” explained Mr Morrison.
“Unfortunately, the investment world has been doing this ever since the stock market sold off and hit its pandemic low in April last year,” he continued.
While this may seem to be a negative outlook, the first half of 2021 has seen many businesses successfully going into and grow out of recovery mode.
“Many of the world’s major markets have recovered spectacularly, with many trading at or around all-time highs, on seriously inflated price/earnings multiples. It’s hard to see any bargains out there, and it’s hard to buy stocks when they’re trading at record highs.
“The most successful investors drip-feed money into the markets on a regular basis.
“But don’t do this until you’ve carried out some research.
“Also, think carefully about your own attitude to risk. Buying stock in Tesla or Netflix may sound like an easy route to riches, but can you stand the volatility?”
Stocks in large companies have the benefit of being incredibly flexible, with the downside being that day-to-day trends could tank or double your investment in the blink of an eye.
There is an alternative to this high-paced form of investing; other stocks and shares simply move at slower rates.
Mr Morrison continued: “Maybe you’d prefer to take a slow and steady path, investing in banking or oil stocks?
“They may not trade as dramatically as tech stocks, but you should receive a decent return in the form of dividends.
“Reinvesting these will help boost your portfolio.”
“Be prepared to diversify, and you could consider buying corporate bonds, although most of these are as expensive as equities,” Mr Morrison said.
“Despite this, there are small companies out there looking for early investors.
“These can offer bonds that promise an inflation-busting return if you’re happy to tie up your money with them for a few years.”
Mr Morrison concluded with a warning: “Unfortunately, there are some crooks out there, and even well-run honest businesses can be unlucky and go bust.
“Make sure you find out how likely you are to get your money back should the unthinkable happen, and don’t forget: all investment comes with risk.”