Investment Vehicles For Beginners

The following is a guest blog post:

Investing can be daunting, especially for beginners. But this is an area in which it is worth facing your fears: investments can serve as a very useful engine for generating extra income. Experts at Tranio.com have come up with several options for rookie investors. These vary from bonds and stocks to exchange-traded funds (ETFs) and mutual funds.

You should carefully research your options when selecting an investment vehicle. Beginning investors are always advised to consult with a reputable financial advisor before investing. That said, as you contemplate your first foray into the world of investment, here are three vehicles you would do well to consider:

1) Robo-Advisors

Robo-advisors provide online wealth management services. They offer fully automated, algorithm-based portfolio management advice without the use of human financial advisors. They use the same software as traditional advisors, but usually only offer portfolio management and do not get involved in more personal aspects of wealth management, such as taxes and retirement or estate planning.

Regardless of a robo-advisor’s particular model, they all provide customer service to assist you through the investment process.

Robo-Advisors tend to be low-cost, have low account minimums, and attract younger investors who are comfortable working online.

Robo-advisors are as diversified as the clientele they serve. In addition, if the main concern is regarding fees there are several robo-advisors with broadly diversified low fee ETF portfolios.

Generally speaking, the robo-advisory sphere is relatively new. As with other new entrants into the landscape, robo-advisors lure in customers with comparatively low fees in addition to creating new methods for professional asset management. The investor should decide what type of investment guidance he or she needs and choose a robo-advisor or financial professional to suit their individual style.

2) Buy to let

Buy-to-let is a British term that refers to the purchase of a property with the purpose of renting it out.

This can be an excellent investment vehicle for beginners. Due to the fact that many property markets have bounced back since the global financial crisis, but have not yet reached pre-crisis highs, investors are snapping up real estate in hopes of seeing a rise in value.

Many investors are seeking to capitalize on the low rates of buy-to let-mortgages.

Caution should be exercised in this regard because mortgage rates can rise and it is imperative that the investment can withstand these circumstances.

In the UK a 20 percent tax credit is expected to be enforced. There are also plans to cut buy-to-let mortgage interest relief. Furthermore, from April 2016 landlords now have to pay an extra 3% stamp duty on property purchases.

As with any other form of investment, great care and precaution must be taken. For instance, in 2007, many buy-to-let investors who bought in the boom years prior to 2007 struggled due to rising mortgage rates. Consequently, the base rate was slashed to 0.25%, which was a good thing for buy-to-let investors. The rates remained the same until Brexit, but there is every possibility that they may increase again.

Nonetheless, Greater demand from tenants, rents that should rise with inflation and the long horizon for interest rate rises, mean many investors are still tempted by buy-to-lets.

3. Stocks

Stock investing is one of the easiest and most profitable ways to build wealth long term.

Stocks are an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets.

There are two types of stocks, Common and preferred. Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights, but usually guarantee a dividend payment.

In the past, shareholders received a paper stock certificate that was issued to verify the number of shares owned by the shareholder. However in modern times, share ownership is usually recorded electronically, and said shares are held in street name by your brokerage firm.

Prior to buying your first stock, you should master the basics of stock investing. After learning the fundamentals of investing, you can begin to invest in stocks with confidence.

Regardless of the vehicle you choose, remember it is always a good idea to start simple, and starting simple in this case means utilizing the most basic investment vehicles. It is also imperative to keep your goals in mind. This will help you to choose the correct investment vehicle. Investments, unlike savings, are very long term so be sure to plan carefully. And always take care to maintain a hands on approach. Be sure to check that your choice of investment is working as it should. Regularly consult with a financial professional.

Kemal Nicholson, real estate and finance expert at Tranio.com, overseas property broker

10 thoughts on “Investment Vehicles For Beginners

    • Hi Jay,

      Sometimes this is easier said than done. It can be difficult for many beginner and seasoned investors to have a long term strategy and stick with it through thick and thin. Human nature makes us nearsighted by default. In any case, following basic rules and investing guidelines can enable any beginner investor to build up a solid portfolio of standard assets and income producing assets over a lifetime. As always, I appreciate your comment.

  1. Good article. Investing can seem intimidating at first and so it’s important for beginning investors to start off slow. Also, they shouldn’t rush into any investment and only invest in things or strategies they understand.

    Moreover, investing doesn’t have to be an all or nothing approach. I do both dividend growth investing and buying rental properties. I also do index investing in my retirement plan at work. However, regardless of how someone invests, the sooner they start the better so they can get the benefit of compounding.
    Dividend Portfolio recently posted…Backup Your Blog – New Feature AddedMy Profile

    • Hi DP,

      Well said. Investing is never a one sided all or nothing endeavor. There are so many different ways an individual can put their money to work and with the Internet enabling new investing opportunities like P2P lending, crowd funded real estate and more, it’s easier than ever for a beginner to get their feet wet. Bottom line, I feel it’s important to simply start and take that first step towards investing in general. Gone are the days of simply saving your money. Today, it’s all about putting that money to work. Thank you for stopping by and commenting.

    • Hi BHL,

      These days it seems like there are so many great and affordable ways for beginners to invest their cash. Stocks, rentals, P2P lenders, crowd funded real estate, etc. The possibilities are almost endless for beginner investors. Thank you for your comment.

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