It is always a good idea to think hard about any financial decision that you are making. There are always pros and cons and it is a good idea to review them before you decide what to do. With investments this applies as well. We can invest in all sorts of things. But the pros and cons can be generalized and so it is a good idea to think about them so that you can decide whether you want to go ahead with investing or not.
Investing can generate a lot of money. There are lots of different types, but generally the return on an investment can be higher than the interest that you can get on savings. When interest rates are low this can be even truer as the amount of interest that you can get on savings can be very small. Even if you find a higher interest account, perhaps such as one that you have to give notice on withdrawals or you tie your money up for a number of years is unlikely to give a very high return compared to what you might get when you take out an investment.
You will normally have to tie up money for a long time when you make an investment or else you may not benefit form it. This means that you cannot touch the money and it can be useful for some people to do this. It can always be tempting to spend money when you have a lump sum of it within easy reach and so if you tie it up in an investment then you will not be able to do this.
When you take out an investment you are taking a risk. When you make an investment you buy an item and hope that it will increase in value before you sell it again. This item is often a share in a company, a house, a painting, an antique or something like this. This means that you buy an item and they you rely on it increasing in value before you sell it. However, there is always a risk that the value of the item might go down. For example, you might buy shares in a company and perhaps that industry suffers and the value of the company goes down as their profits fall and this will mean that the value of the shares go down. This means that you could end up losing some of the money that you have invested and there is even a chance that you could find that the value completely drops and you get nothing back at all. Although this is rare, it is a good idea to be prepared for this and only invest money that you can afford to lose.
The need to tie up the money as well, means that you cannot use money that you need, particularly if you need it quickly. If you invest in a managed account, then it is less likely that you will lose money, but you will still need to keep it tied up for a long time, to make it worth it. Therefore, you need to only use money that you can guarantee that you will not nee din the short term.
Some people with investments will panic and sell up when the value falls. So if they have shares in a company and the value drops, it means that they will sell them quickly, hoping to cut their losses. However, this can mean that they will end with less money than they put in and had they left the money invested, they could have gained something from it. Therefore, it is wise not to buy investments if you think that you will get twitchy and worried and decide to sell up quickly.