Any well-balanced investment portfolio contains a healthy mix of diverse investments ranging from high-risk and potentially higher-reward investments like hedge funds and venture capital to low-risk longer-term options like the property market.
Because you won’t find any office or apartment blocks being traded on a stock exchange, property investments are generally considered slow, stable, and insulated against daily fluctuations in their value.
Since the lockdown was first announced in March, the stock market took a hit with the prices of many shares taking a nosedive into oblivion. Not property prices though. They have remained largely stable throughout the COVID-19 pandemic, which goes to show how steady real estate is as an investment option, to cushion you against the shifting economic forces.
This article explores the different investment opportunities UK residents can choose from, and our recommendation based on your risk appetite.
Shares
Shares, also known as equities, represent small fractions of a company’s value. Owning shares denotes ownership of a tiny portion of that company. You can own them individually or pool your money with others in a collective investment known as a fund.
Shares for different companies are bought and sold on the stock exchange. Larger companies have “listed shares” which are traded on the London Stock Exchange (LSE), while those of smaller companies are traded on the Alternative Investments Market (AIM).
There are two main ways an investor can make money from shares:
- As the company grows, its value also increases, which means the price of each share goes up. Your investment will be worth a lot more than it was when you first invested
- You earn a cut of the company’s profits every year based on the number of shares you hold. This is known as a dividend
Smaller companies don’t typically pay dividends but tend to expand rapidly. This also means that they are a riskier investment. Bigger companies, on the other hand, tend to be safer. They will pay you dividends on your shares, but don’t expect to get rapid growth in your investment.
Keep in mind, however, that investing in equities, in general, is risky since the price of a share can go up and down in a matter of minutes for any number of reasons. Your best bet would be to have a diversified stock portfolio to spread your risk and reduce your exposure.
This may involve putting your money in pooled investments like Open-Ended Investment Companies (OEICs) and unit trusts, and investing in other companies, assets, and countries. If you’re in it for the long haul (5+ years), there’s a chance you’ll get some good returns.
Investment Bonds
This is a life insurance policy where you invest a specific amount of money in a wide range of available funds. Some bonds run for a fixed period, while others have no term constraints on them. The ROI you get when you cash in your investment depends on the performance of the fund.
Investment bonds usually have a minimum lump sum amount you’re required to pay upfront. This could be anywhere between £5,000 and £10,000. Your money could then be invested in two types of funds, namely a unit-linked fund or a with-profits fund.
In unit-linked investments, you decide which fund you want your money invested in. You can choose to put it in property or equities, or a mix of both.
These funds are divided into “units” whose value depends on the underlying performance of the fund. This means that your money is exposed to the changing conditions of the market, so you may or may not get back all of your initial investment. The potential returns, however, are monumental.
With-profits investments, on the other hand, add the bonuses and profits of the fund to the initial value of the investment. There’s no risk of losing your money in this option.
Both funds are, however, subject to the same taxation rules, where the capital growth, as well as the income accrued, are taxed.
Government Bonds
A government bond or “gilt” is a debt-based investment where you’re essentially loaning the government money for a specific period at an agreed interest rate. This interest is paid back at regular intervals, also known as the “coupon”.
Once the period expires, you get back the money you initially invested. The UK government uses bonds to raise funds for infrastructure or new projects and offers lucrative interest rates for individual investors.
Property Investment Opportunities UK
An investment property refers to a piece of property that’s purchased solely for generating income. Investors can get two forms of returns on property investments. There’s capital growth where the value of the property in question increases over time. Then there’s rental yield, which is generated by rental income.
The available investment opportunities UK residents have when it comes to property investment are:
1. Buy-to-Let
This is arguably the most popular investment strategy in the UK. It allows investors to make significant returns on their property through capital growth, as well as rental returns. It is the only kind of investment out there that offers both types of returns, which is why it’s a popular choice for many investors.
2. Buy-to-Sell
In this investment strategy, an investor purchases a property below market-value renovates it and then sells it at a higher price. This approach is ideal for individuals looking to generate a substantial amount of cash through short-term investment.
3. Property Development
This is similar to a buy-to-sell approach, except that, instead of an investor buying an already-existing property, they would develop a new one themselves from the planning stage to the actual construction of the building. It is the most time-consuming of all the different options available.
4. REITs
A Real Estate Investment Trust (REIT) is a publicly-traded company that owns investment properties. REITs are traded like stocks, so you get to own or finance real estate companies, like you would when investing in any other industry.
Providing Unmatched Stability for the Long Haul
There you have it – the top investment opportunities UK residents can benefit from. Overall, the property market in the UK stands as one of the most popular investment destinations in the world. With average yields of between 5 and 10 per cent, it’s not hard to see why. The best part about it is – it’s a stable and safe option compared to other investment opportunities out there, making it ideal for the risk-averse investor.
Are you looking for the best place to invest in property? Check out our blog for a comprehensive guide on the available opportunities.