Money makes the world go round, or so they say. The truth is, if you have no money, life is tough, so it makes sense to maximize what little you do have. Once you have an emergency savings fund, no debt, and a pension in place, it is a good idea to make the most of any leftover cash. You can do this in any number of ways, but with savings accounts paying negligible amounts of interest right now, you may wish to think outside the box.
The following ideas are no substitute for professional advice from an expert, but you might like to give them some consideration if you want to make your savings work a bit harder.
Crowdfunding sites have become massively popular in recent years. Their premise is simple. They allow people with money to connect with people who need money. You are, in essence, cutting out the intermediary, and if you back the right venture, you could make around 10% a year on your investment.
There are many different crowdfunding platforms to choose from, so choose your investment wisely. Backing a startup can be risky, but if the business takes off, the gains are likely to be substantial. Look around, see what your options are, and consider backing an established business if your appetite for risk is low.
Real Estate Investment
The real estate market is a relatively safe investment, as property rarely loses money, at least not in the short-term. Investing in buy to let real estate has become popular in recent years, with millions of people snapping up affordable properties and renting then out to tenants. If you select the right property, you can earn a regular income and enjoy capital gains. However, real estate is not an armchair investment and unless you pay an agent to manage your property, you will need to be hands-on.
A real estate investment trust (REIT) is a new way to invest spare cash in real estate, without the hassle of having to manage a property. Instead of buying a piece of real estate outright, you invest your money in a diversified portfolio of real estate.
REIT investing is a passive investment, so you don’t need any real estate expertise. A management company takes care of the day-to-day running of the individual properties, which includes managing tenants. All you do is wait for your dividends to be paid, which are typically around 10%.
P2P lending is similar to investing in crowdfunding, but rather than investing in a business, you are lending your money to individuals in need of a loan. Sites like Zopa have taken over the P2P lending market.
Interest rates paid on money invested in P2P lending sites is better than the rates you will receive on mainstream savings accounts. You are also free to withdraw your money at any time, which makes P2P lending an attractive option for short-term gain.
P2P lending is not risk-free, but if you stick to larger sites like Zopa and Funding Circle, your capital should be safe. Money is matched to borrowers and your cash is lent out in small chunks, so if a borrower defaults on their loan, you won’t lose more than a small amount of your capital.
Investing in the stock market is tricky and most individuals wouldn’t know where to begin or what stocks and shares to buy. ETFs are a simple way of investing in the stock market. Instead of buying shares in one company, you invest in a fund that follows the performance of an exchange, e.g. the New York Stock Exchange.
Your investment tracks the performance of every single stock on the New York Stock Exchange. If the ETF performs well, you make money, but if it performs badly, you lose.
Look at the past performance of any ETFs you are considering. This doesn’t predict future performance, but it should indicate whether you are in for a rocky ride.
Mutual funds are a slightly different type of investment product. Mutual funds are spread over a range of different products and it is the fund manager’s job to decide where your money is invested. If he or she does a good job, you make money, but if their judgment is awry, you won’t realize any gains. For this reason, it is essential that you practice due diligence before investing in mutual funds.
You are more likely to realize gains if you stay away from the safety of a traditional savings account, but don’t throw caution to the wind unless you can afford to lose your capital.