The Best Way to Invest Money in 2021

Three of the best investments for 2021 for UK and international investors.

Choosing whether to save or invest your money is a highly personal decision. Whilst savings tend to be for short term goals (as well as building up an ‘emergency fund’), longer-term you may decide to invest your money as a way to grow your wealth and establish a comfortable future. 

Investing has many benefits, and can be used to help fund your retirement and provide an additional source of income, as well as increasing your purchasing power (that is, your financial ability to purchase something) over time. 

If you find yourself with some disposable income, one of the best things you can do for your future is to invest some of it in mid to long term opportunities, and let it grow over time, ready for you to enjoy the fruits of your labour anything from 10-15 years down the line. 

While there are many benefits to investing, new investors should also balance the potential rewards with the risk involved. As 2020 showed, the markets can become volatile almost immediately after significant events, such as the COVID-19 pandemic and presidential election.

This guide covers the best investments for 2021, the best ways to invest money, which investments have the best returns and investing tips for beginners.

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    Important note: The advice provided on this website is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.

    What Is an Investment?

    There are two slightly different definitions for investments. An investment can be either:

    • An asset or item required with the goal of generating income or appreciation (such as property investment, vintage cars or jewellery)
    • The action or process of investing money in a corporation for profit

    Investing Tips for Beginners

    Here are our top 5 rules for beginners and anyone new to investments

    1. Understand that the greater return on investment you want, the more risk you will have to accept
    2. Carefully choose who you listen to. Your colleagues, friends or family might have good intentions but they might not be the best qualified to offer investment advice. Opt for specialist investment advice
    3. Diversify your investment portfolio with different companies, properties and industries to lower your risk exposure
    4. Frequently review your portfolio for shares or assets that might be unsuccessful or carry too much risk that you are comfortable with
    5. Don’t expect instant results. Investments can take at least five years to appreciate. If you cannot wait this long to yield results, it is best to opt for a savings account.

    What Is the Best Way to Invest a Lump Sum of Money?

    Here are some of the most popular ways to invest for new investors

    Shares

    Investing in shares is most people’s first experience of investment. A share is simply a divided-up unit of ownership in one or more companies. Investing in shares means to purchase a ‘unit’ with the aim of making a profit. Shares can increase and decrease in value for various reasons, such as the company’s success or negative publicity.

    Stock markets and shares can be risky. There is plenty of chance that you could make a huge profit, but there is also a significant potential to lose money. 

    The reality of investing in shares is nothing like what The Wolf of Wall Street and other similar films would have you think. Rather than aggressive young brokers shouting, it is merely a case of investing in a few shares, keeping an eye on them and cashing them in when you think it’s appropriate. 

    To invest in shares, you need a rational and sensible attitude when looking at the stock market. Your attitude should be able to weather any pitfalls or surges that might come with your shares. 

    There are two ways that you can make money when investing in shares:

    1. When the shares increase in value and the profit you earn when selling
    2. Shares can also pay dividends where if a company makes a profit, it gives some of it back to you (either as a one-off or on a regular basis)*

    * You have a dividends allowance each tax year where the first £2,000 you receive is tax-free.

    Funds

    Funds are another way to buy shares. Rather than buying a unit directly from the company, you give your money to an investment manager whose role is to gather enough money (from you and other investors) to buy a job lot of shares in the stock market. 

    Funds are made up of ‘units’ and their cost varies on a daily basis. Therefore, if you want to invest, you’ll need to buy units. 

    The price of units will vary depending on demand in the market for this specific fund. For example, if you invest £1,000 in a fund and each unit costs £2 – you can buy 500 units. A few months later, each unit is now worth £3 and your investment is worth £1,500. 

    All funds have a theme and you can invest in funds in many different industries (or ‘themes’) such as companies in a specific country or emerging market, energy, oil, precious metals and debt. All these varying themes and industries will have different amounts of risk involved. 

    For example, you could buy units in a fund for FTSE 100 companies, where it invests in the UK’s 100 most successful companies. This might have less risk involved than funds in new industries and emerging economies.

    Bonds

    Bonds are debt obligations. Companies and governments can issue bonds to raise the money for a particular venture and pays an agreed interest amount as payment over time.

    Investors who buy bonds are known as ‘lenders’ and the bond note is their IOU (“I owe you”). As companies and governments pay a stated interest rate, the market value of the bond can change if it becomes less or more attractive to potential investors.

    There are two types of bonds that offer lower interest rates and are therefore less risky:

    • Bonds that are more likely to be paid on time (known as ‘higher-quality bonds’)
    • Bonds that have a shorter length of time until full repayment (known as ‘shorter maturity bonds’)

    UK Property Market

    There are a few types of property that you can invest in, such as:

    REITs (Real Estate Investment Funds)

    Real Estate Investment Funds are investment funds (see explanation of ‘funds’ above) that only invest in real estate. Several investors buy units in the fund for the property, which the fund then owns. It is a popular method of property investment in the UK because it is a pooled investment from multiple investors, therefore, it is easier to invest in and get out of. 

    Buy to Let Investments

    Buy to let investments are some of the most traditional property investments. This is where you buy a residential property and then let it out to someone else. Though property and house prices can fluctuate, they should increase over the years that you own the property – providing you take good care of it. 

    Property Development

    This involves the entire business process of developing a property, ready to be sold to potential homeowners. This includes purchase of the raw land and sale of developed land, building and renovation and selling the house on. Given the amount of involvement required with property development, it is not the best suited for new investors.

    Off-Plan Investments

    Off-plan investments are where you buy a new build which has not yet been finished. A huge benefit to off-plan investments is that they can be significantly cheaper, as the property is not finished or on the market. However, there can also be risk involved if you do not thoroughly research into the property developer or location of the property. This is where it is crucial to get advice from a specialist.

    Investing in Property Abroad

    If your homeland’s property market does not appeal to you, then you might consider investing in property abroad. When investing in property abroad, you gain the benefits of having a permanent holiday destination and bragging rights with your peers. However, this should also be taken into consideration with the risk of entering a foreign property market, maintenance costs and an additional mortgage payment. This is where it is crucial to get advice from a specialist that is knowledgeable of the country you want to invest in.

    Which Investments Have the Best Returns?

    Discover the three investments which have the best returns.

    High-Yield Savings Account

    High-yield savings accounts are similar to traditional savings accounts, but offer you a higher interest rate. By placing your money in a high-yield savings account, the annual percentage yield (APY) allows your money to grow faster compared to a basic savings account.

    Because online banks such as Monzo and Starling have fewer overhead costs, you might find that you can earn a significantly higher interest rate at an online bank.

    Whilst this might not seem like the most exciting investment, the lower risk level means that it offers the best returns compared to other methods.

    High-yield savings accounts are ideal for storing money and allowing it to accumulate with interest but minimal risk. As an extremely liquid investment, they also provide quick access to your money (even via an ATM for some banks) without penalties or fees in most cases.

    Certificates of Deposit

    Certificates of deposit (CDs) are federally-insured certificates issued by banks to a person that deposits money for a specified period of time at an agreed interest rate. They generally offer a higher interest rate than traditional savings accounts. 

    The maturity date (length of time until you can withdraw money) can range from several weeks, months or years. Due to the nature of the agreement, you cannot withdraw the money prior to the maturity date without penalty. 

    So how do you earn money through CDs? The bank should pay you interest at agreed intervals throughout the period of time. Once it has reached maturity, you can withdraw your original investment plus any accrued interest.

    CDs are an ideal investment choice for retirees who might be able to lock up their money for a period of time and not need an immediate pay-off. 

    The main disadvantage to be aware of with CDs is the reinvestment risk. If interest rates were to fall, this means that investors might have to reinvest their cash at lower interest rates. If interest rates were to increase, investors would be able to take advantage of this as they’ve already agreed to a specific CD.

    Student Accommodation

    Student accommodation can be a great investment as there will always be a demand for it in popular locations. If working independently, there are several factors that you must consider in order to succeed:

    • Location
    • The type of accommodation
    • Whether to finance or buy it outright
    • Maintenance and dealing with tenants

    If you choose to invest in student accommodation without guidance, you have to consider all of the above factors and whether or not you want to be involved with the student tenants or potential maintenance issues. All of which can adversely affect the time and money you invest.

    When working with property investment providers, you can have an ‘armchair investment’. This means that you allow the provider to do all of the work for you, inform you of the best locations and property types for your budget, and maintain communication with developers and management companies (for maintenance queries, for example).

    Property is among the least liquid investments, meaning that you would be unable to quickly access any monetary value of the property. However, if you maintain your property and gradually grow the renting price, you can end up with a powerful, extra source of income.

    The Best Investments for 2021

    The best investments entirely depend on how comfortable you are with certain levels of risk. There is a whole range of investments available, ranging from safe to riskier ones with higher returns.

    Learning to invest, no matter your age, is a great way to build your wealth over time. It is also an excellent skill to pass down to children or younger siblings to increase generational wealth.

    Investing can be daunting. However, by fully researching into the type of investment you want to pursue and all the potential pros and cons will allow you to mitigate as much risk as possible on your journey.

    At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market. We want to help you with your long-term goals and ambitions in property investment. We also work with experienced investors to help them increase the value and profitability of their portfolios.

    Get in touch today for your complimentary property investment consultation with one of our senior property investment managers. We cannot wait to help you with your property investment journey.

    Are you ready to take the next step?

    To learn more about the property investment opportunities available through Sterling Woodrow, contact us today.