What defines a “sensible” investment, and what can you gain from it? Sensible investing revolves around the idea of dividing your monies into various sections to cover all your needs, and of course meeting your risk-reward profile.
In this article, we will highlight four major types of investments, going from low-risk low-reward to high-risk and high-reward. To secure in all your future investments, consider your own financial situation when looking at the pros and cons of each.
Set aside a deposit account to cover planned short-term spending needs or emergencies, like unemployment while seeking another job.
Assess your lifestyle and personal spending habits. The needed amount varies by person. Typically, less than three months’ income is insufficient for emergencies. However, having more than a year’s income on deposit is likely excessive.
Investments meet a known expenditure within 1-5 Years
These investments guarantee a profitable return within one to five years. Examples include deposit funds for house purchases or safe investments with good returns over fixed periods, such as deposits, National Savings, and other fixed or near-fixed rate investments.
Medium to Long Term Savings
These investment types target returns not needed for at least five years. Since you won’t need the money for five or more years, you can explore the entire spectrum of equity-based and managed funds. This approach aims for maximum long-term growth in the major world economies, tailored to your personal risk-reward tolerance, which differs from one person to another. Evaluate your own needs before committing to this longer-term investment strategy.
Speculation is Not Sensible
A speculative investment represents an “insensible” choice, offering high potential rewards but equally high risks. Companies like Count typically steer clear of speculative investments, though they may point them out if you possess any. Often, people acquire these investments by mistake or through inheritance. Common examples include direct investments in small companies, AIM listed shares, and certain unit or investment trusts in emerging or technology markets.
We label these investments as “speculative” because their values and incomes can fluctuate, sometimes due to exchange rate changes, posing a risk of incomplete returns. Taxation levels, bases, and reliefs might also change. Before opting for this high-risk option, assess your needs carefully. There’s no guaranteed return on investment, and past performance doesn’t predict future results.
Now that we have outlined four types of financial investment, and what makes each a good use of your monies and why the latter option is not. As always, securing all your future investments and considering your own financial situation will help you make an informed decision as to which path is right for you. If you found this information helpful and would like our team to assist you in investing effectively, contact us today.