Investment Guides 

Getting started in investing

Getting started in investing

Introduction

Why should you invest? After all, it sounds like a load of extra hassle you could do without. It's complicated. And every time you read anything about finance and investment in the mainstream press, or see anything about it on television, it's usually because of some great rip-off or huge failure - like the banking collapse or the demise of Equitable Life.

Don't be put off! Investing can be very simple if you choose to keep it that way. You can avoid manias, panics and crashes if you stick to some basic rules. You can materially enhance your well-being in later life by putting aside during your working years. You will be in control of your financial affairs, rather than being dictated to by governments or employers. And you might even have some fun.

This guide is designed to help you get started in investing. It's about the basic principles of investment - there are plenty of others to help you with the detail of shares, bonds, funds, investment trusts, exchange-traded funds, property, commodities and so on.

What do we mean by investment? Benjamin Graham, an influential writer on investing in the 20th century, defined investment as "an operation which, upon thorough analysis, promises safety of principal and an adequate return". He dismissed everything else as mere speculation.

If you look for absolute safety of your principal, you'll not make many investments - the very process of investing involves taking on some degree of risk. But an adequate return, as you'll see later on, is heavily dependent on the income your investment can generate. So it's helpful to think of an investment as being anything that can generate an income.

In practical terms, that means many shares (which pay dividends), bonds (which pay interest) and property (the tenant pays you rent). Cash may also pay you interest, though not much. Buying something in the expectation that somebody else will buy it off you at a higher price later on is, strictly speaking, speculation - although it can be lucrative. So some kinds of shares, commodities like gold and oil, and alternative assets - such as art, wine, stamps, coins and so on - that don't generate any income, are inherently speculative. If their prices fall, you'll lose money.

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