Why you should consider investing in stocks and shares.

Why you should consider investing in stocks and shares to make you money

A post by Rebecca Megson

When my hubby said he was taking out a £5,000 loan in order to buy some shares I have to say I honestly thought he had gone mad!

Such a move felt a lot like gambling, with to my mind the very real possibility of him losing all the money and yet still having to pay back a loan on a monthly basis.

In actual fact since he made the investment – in a single oil company, having done some pretty straightforward research online and with a view to this being a five-year investment (in line with the loan) – he has seen his shares steadily increase in value.

Now it’s really important to state upfront that investing in stocks and shares is fundamentally risky. This after all is why the returns on your investment are likely to be higher and therefore more interesting.

The Maths

But what sold my husband’s plan to me was, unsurprisingly, the maths.

In the same way that it’s pretty impossible to make any money in savings accounts at the moment, the flip side is that interest rates on loans are pretty low.

So his £5,000 loan has an interest rate of 3.8%, meaning that by the time the loan expires he will have repaid a total of £5580 (including fees).

In contrast he purchased £5,000 worth of shares and, on the basis of the research he’s done into the market, anticipates that over a five year period the share price should reach £7500 at worst and £25,000 at best (come on oil price!!!).

At worst that’s an earning of 50% on the initial outlay (39% more than he’s paying in interest on the loan) and at best it could be as much as 400%.

Tracking The Progress of the Shares

My husband tracks the daily progress of his shares via the Google finance app and keeps on top of news and information about both the company and the oil market in general. This might sound like a lot of work but it takes about the same amount of time as checking in on the latest football news.

He monitors in this way to ensure that the value of his shares doesn’t go below the amount he owes. If it looks like it’s going to he can cash his shares in, pay his trading fees, pay the loan back early and, importantly, STILL break even.

Inverse Savings Account

In a funny way on this basis the loan acts as a kind of inverse savings account. It’s really easy when you’re faced with a tight month to stop the monthly payment into your savings account, or worse still dip into it ‘just this once’. But because he has to pay the loan company back that money is definitely set aside. And so long as the oil price does continue to rise in the long run by 2021 there’ll be a chunk of money that we can play with.

Now in terms of practicalities, it definitely does take some research and there is no guarantee that the investment will pay out but at least he does have checks and breaks in place to avoid or at least reduce any potential losses.

For me, this really shows that trading on the financial markets is actually opening up to people outside of the City and that it really can be something that you can get involved in as a pastime.

There are actually an increasing number of ways to do it, some more and some less risky than this approach.

Online Trading Platforms

One alternative would be to get an account with an online platform such as eToro. These platforms are really interesting because they work much more like social media accounts so you can chat with other ‘traders’ and learn from them.

Moreover you can copy the entire portfolio of a successful trader, such as Jaynemesis, and trade in exactly the same way they do. This could be particularly useful if you didn’t want to spend as much time and energy on the research side of things.

Each trader on the platform has a profile that you can view which includes information including how successful their investments have been in terms of return so you have some degree of surety on the likelihood of success for you in copying them.

Other options, that are less risky again include investing in an index fund tracker like the FTSE all-share index, investing in government bonds, or investing in gold (a commodity even traders tend to turn to when things seem precarious in the financial markets!). The return on your investment tends to  reduce in line with the decrease in risk of course!

It’s certainly an interesting space and one to watch….

This is a collaborative post.

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Lynn Beattie

Aka Mrs MummyPenny

Personal Finance Expert

I write about personal finance made simple, lifestyle choices that will save you time and money, as well as products and services that offer great value.

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