Investing in the stock market has long been considered to be a successful method of securing returns that can far outweigh ones that can be gained from a traditional bank or building society.
Despite the recent falls in share value caused by the global economic crisis and recession, returns for long-term investors can be large. On average the UK stock market has returned an annual rate of approximately 11 per cent.
Investing in the stock market can be an effective long-term strategy if done correctly.
For beginners, opting to invest in funds may be the best route to take. A fund consists of a variety of shares of a number of different companies. The value of shares within the fund directly influences the success of the fund; however, one share's movement has a smaller effect on the overall value, making it a relatively safe option.
Investors are required to pay a fund management fee as a price for the stability of the investment.
By investing in a fund, individuals are able to spread their risk and avoid placing all their bets on one company.
For individuals with more money to spend, spread betting can be a productive method of investment. Individuals are able to split money up across a number of low, medium or high-risk funds - each of which carries a separate fund management fee.
However, choosing which funds to invest in can be a daunting task, as income funds, growth funds, UK and overseas funds and those which combine all of these make up the market and time should be taken to explore the best option before making a decision.
Shares are an investment in a particular publicly-traded company. The value of your investment follows the cost of the share itself. Therefore, any rises and falls which it experiences will be directly translated into profits and losses.
Unlike funds, shares carry a much greater risk, but also come with the potential of offering bigger returns.
The largest challenge faced by investors tackling the stock market is timing, as knowing when to buy and sell is crucial to success. Furthermore, it is important to note that a stock market investment is unlikely to offer huge short-term gains and should be left to develop for a period of time.
- Wednesday 12 May 2010