So what exactly is an investor?
The Anthology section showcases our best writing for clients. This piece for BlackRock explores what an investor is. Many think of investors as out there, wealth-flashing types, but most of us are investors in some way
AUTHOR: Rachael Revesz
EDITOR: Caroline Elderfield
If you ask a random person on the street to describe a typical investor, they might suggest someone in a suit with a briefcase full of cash or a character from The Wolf of Wall Street. Or maybe they would describe someone who has three computer screens set up in the study and spends their life poring over annual general meeting reports.
But, in 2019, investors increasingly do not fit such stereotypes. These days, millennials with smaller amounts of cash are investing online, saving spare change from takeaway coffees on their money apps and putting it into a portfolio. Investing, as many people see it, is one way of sorting out your financial health (trying to counter price inflation) and aiming to build up something for the future – although there are no guarantees you will get back what you put in.
You are more likely to be an investor than you realise. For example, if you have a pension or are part of an employee share scheme at work, then you already invest. If you are a homeowner, you have invested in property. It simply means you have money in a wider range of places than just as cash in a savings account. It also means your money could make a return that will increase over the long term – rather than just sit in a savings account.
When it comes to what you can invest in, the world is your oyster. Shares and bonds are the most commonly talked-about forms of investment and include everything from UK supermarkets and Australian government bonds to Latin-American tech companies and German car manufacturers. You can also invest in commodities, which are products traded globally such as oil, gold and wheat. The different types of investment, for example commodities and shares, are called asset classes. Other, more familiar, asset classes are cash and property.
You can also invest in line with your life interests. Depending on your resources and risk appetite, there are also opportunities to invest in comic books, wine, vintage rock guitars, even start-up companies that build solar panels or anything else that takes your fancy.
If you’d rather not pick what to invest in yourself, you can pay a fund manager to do it for you. She or he actively chooses where to invest and tries to beat the average market return, or at least keep you in the black for as long as you are invested. Passive funds (a fund that doesn’t have a team actively managing it day to day) also carry an annual fee, but there is less human input as the fund simply tracks a market such as the largest 100 UK companies or the 500 most liquid stocks in the US. If the market goes up and down, so will the value of your investment.
Regardless of how you build your portfolio, there are several basic rules to be aware of. First, a fund’s annual management charge can affect the amount of money you make. So, just like anything else you buy, it’s important to shop around first. Second, don’t put all your eggs in one basket and bet on one stock. Third, be aware that capital markets go up and down – but they tend to go up over the long term, even after events such as the bursting of the dot-com bubble and the great financial crisis of 2008. So it’s important to remember to invest for the long term and not the short term.
If you decide to stick with it, you still need to know about the risks that come with the rewards. This might be where a financial adviser comes in. Under UK law, advisers have to put your interests first and charge a transparent fee, rather than take commission.
FURTHER READING: BlackRock case study