You probably have a vague idea of what an ‘investment’ is but, if you’re entirely new to the world of finance, embarking on your first investment might feel intimidating and even overwhelming. Undeniably, upon first considering all the investment options available, you’ll find that the choices are vast and wide ranging — each type of investment offering a different level of risk and its own unique list of benefits.
From personal pensions to mutual funds or fixed term deposits, at APS Bank we offer a selection of investment options that are ideal for first-timers who are just embarking on their investment journey. In this guide to investing basics for beginners we’re covering the definition of investment, why investing is important, different investment types for beginners and how they work.
So, if queries such as “how should I invest my money?” or “which type of investment should I pick?” have, so far, held you back from taking the first step, this article has got you covered. Keep reading our easy-to-follow investment guide to get the answers you’ve been looking for!
Like the process of buying seeds and planting them with the hope of seeing them flourish into beautiful plants, when investing, you place a sum of money aside for the future but, instead of letting it sit idly in a savings account, that sum is put to work with the hopes of generating a profitable return.
If investing and saving are both ways of putting funds aside for the future, then what sets them apart?
• Long vs short-term results. When investing it is normally recommended that you only invest if the funds are not needed for at least 5 years. This timeframe is required to be able to ride through any market downturns and provide you an adequate return. So, if your main aim is to save up for a property loan deposit or to purchase a new car, your goals are short term and would be better served by an easy-to-access savings account or short-term deposit accounts. However, if your overall purpose is to increase your capital for the future, generate a higher return from your funds, and ultimately achieve financial security, investing is the best option since this may potentially earn you a much higher return than a savings account.
• Level of risk. Naturally, with any investment there is always an element of risk and the normal rule of the thumb is that the riskier, the higher the potential gains (or losses!). Not every investment is equally risky, and we have a variety of options to suit your needs. On the other hand, deposit accounts are virtually risk-free and offer you the peace-of-mind of getting back whatever amount you put into your account.
• Level of return. With a savings account, the level of return is minimal, making this option not ideal if you are looking to increase your capital in the long run. In contrast, investments have the potential to provide you with a good return and maximise your finances.
Finally, before choosing a suitable investment, you need to look at different aspects such as duration, macro-economic environment, volatility, interest rates, charges and lock in periods.
Now that you’re clear on what investing is and how it compares with saving, you might question why you should even bother with investing? Is it truly worth the trouble? In short, the answer is yes! While saving money is important, it is only a fraction of what can be done to reach your financial goals.
To save money the smart way, we recommend starting by setting aside a sum of money for emergencies – preferably made up of three to six months’ worth of your salary – in a savings account. Yet, after building this easy-to-access financial safety net, turn to the benefits of investing to increase your capital. Here are the top investing benefits you should keep in mind:
• Meet your financial goals. Since most investment ventures can earn you a higher return than saving, investing could help increase your funds and allow you to meet your financial goals.
• Prepare for inflation. When generating good returns, you will have more money saved up to make up for inflation. So, with investments you will be safeguarding your long-term financial wellbeing. Of course, a savings account will also help to soften the effects of inflation, but since the return this generates is more limited, it is no match against solid, long-term investment plans. Historically, the returns generated by savings accounts were rarely higher than inflation.
• Increase your income. When opting for high-quality investments, the return you generate could be used to supplement your main income. Otherwise, you may choose to reinvest those earnings to drive further financial growth.
Types of Investments to Consider with APS Bank
APS Fixed Term Deposit Accounts
One of the simplest and safest ways to engage in a long-term investment is through fixed term deposits. Unlike individual stock market investments, fixed term deposit accounts offer low-risk – and also low-maintenance – means of putting your money to work, making them perfect for investors with a low-risk tolerance, such as pensioners or first-timers.
To get started, you would need to place a minimum deposit of €1,000 in the APS Fixed Term Deposit account for at least 1 month, depending on the type of fixed term account you opt for. Remember, you will not be able to touch those funds for the duration of the stipulated term, but this offers you the potential to earn a higher interest rate than if using a savings account whilst providing you with a stress-free investment option.
From time to time, APS Bank also issues structured term deposits, the APS Kapital Plus, where the account would offer a mix of fixed interest and the opportunity to generate an extra return according to the performance of the underlying investments.
For a more adventurous investment option, we also offer the opportunity to invest in the APS Funds. So, instead of investing in individual stocks and bonds, which requires intensive research and a degree of experience, beginners and professional investors alike may opt for diversified funds made-up of pre-selected investments. This offers an easy, low-maintenance choice of investment, that in some ways compares with the safety of fixed term deposits.
Yet, there are some noteworthy differences between funds and fixed term deposits. Unlike fixed term deposits, investment funds typically provide a higher degree of flexibility as some (or all) of your money may be withdrawn at any time. However, whilst fixed term deposits are not subject to market performance – making them a low-risk option – with investment funds the value of your investment may go up or down depending on the performance of your fund – meaning that you could lose or gain money depending on the market performance.
Despite the risks, investing in funds has the potential for higher returns over the long term and is recommended for investors who do not have the time or aptitude for investing directly in the stock market.
APS Personal Pension Plan
There is possibly no better reason to start investing than to ensure your future comfort and peace-of-mind. Our Personal Pension Plan, which can be tailored to your needs and risk tolerance, is specifically designed to give you the safety net you will need to deal with any financial uncertainties post-retirement. With the APS Personal Pension Plan, you may afford yourself the comfort you so rightly deserve throughout your golden years. Under present legislation, pension plan savers also benefit from attractive tax grants.
Investments can be beneficial for various reasons, from helping you reach your long-term goals to affording you financial security later in life. When it comes to life insurance, this is a unique choice that provides your family with the peace-of-mind they need following your demise. Whether to pay off your home loan or help with day-to-day expenses, having a solid life insurance plan ensures that your dependents remain unburdened by any outstanding expenses and can meet their financial obligations.
Investing Basics for Beginners – Main Takeaways
• Investing is putting money to work with the hopes of generating a profitable return.
• Investing is a long-term option – ideally done for 5 years or longer.
• The higher the risk, the higher the potential return or losses.
• You can invest directly in the stock market or use the option of professionally managed readily packaged products, such as investment funds or deposits.
• Diversification is usually safer than putting your eggs all in one basket.
• Start as early as you can so your money will have more time to grow.
To get started or ask any questions, contact us by filling in the form below. Our dedicated investment advisors offer a complimentary financial planning service to help you achieve your financial goals!
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Approved and issued by APS Bank plc, APS Centre, Tower Street, B’Kara BKR 4012. APS Bank plc is regulated by the Malta Financial Services Authority as a Credit Institution under the Banking Act 1994 and to carry out Investment Services activities under the Investment Services Act 1994. The Bank is also registered as a Tied Insurance intermediary under the Insurance Distribution Act 2018. This information shall not be deemed as investment, tax or any other form of professional advice. You should consult your independent legal, investment or other advisors to ensure that any decision you make is suitable for you with regards to your specific circumstances and financial situation. Terms and conditions apply and are available on request.