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Minerva Business Park Peterborough, PE2 6QR
enquiries@tuto.org.uk Email us at any time
01733 235221 Mon-Thurs 9am to 7pm, Friday 9am to 3pm
Aged 55 or Over?
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Investments

Many people either get a lump sum to invest at some point in life or simply decide that they wish to put money aside each month to save up for something special in the future. Perhaps they’ve inherited a windfall, taken tax-free sum from a pension or want to save for a wedding or a house deposit.  We have put together this guide to the most common types of investments with an overview of each one and including other key considerations.

What are investments?

Investments are something you buy or put your money into to get a profitable return. The various types of investment fall into four main groups, known as ‘asset classes’:

1. cash – the savings you put in a bank or building society account
2. fixed interest securities (also called bonds) – you loan your money to a company or government
3. shares – you buy a stake in a company
4. property – you invest in a physical building, whether commercial or residential

There are other types of investments available too, including:

• commodities like oil, coffee, corn or rubber or gold
• foreign currency
• contracts for difference, where you bet on shares gaining or losing value
• collectibles like art and antiques

Types of Investments

Investments come in all shapes and sizes, many are very complex and need professional management but we have put together a guide to the most common ones people come across

New Stocks and shares NISAs

A Stocks and shares NISA is a ‘wrapper’ that can be put around a wide range of different investment products to help save you tax. On 1 July 2014, Cash ISAs and Stocks and shares ISAs were merged into a new single ISA (NISA), with a much higher limit of £15,240 per year.

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Unit Trusts and Open-Ended Investment Companies (OEICs)

Unit trusts and Open-Ended Investment Companies (OEICs) are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets and other investments. This guide covers on-shore, that means UK-based, OEICs and unit trusts.

Investment bonds

Investment bonds are life insurance policies where you invest a lump sum in a variety of available funds. Some investment bonds run for a fixed term, others have no set investment term. When you cash investment bonds in, how much you get back depends on how well – or how badly – the investment has done.

Structured Products, Deposits and Investments

A structured product ties up your money for a set time and might be designed to give you income, growth or both. Structured products are complex and can be more risky than they seem, so get professional financial advice if you’re not sure whether they’re right for you.

Fixed interest securities

Fixed interest securities are a way for companies or governments to raise money by borrowing money from investors. Securities issued by the UK Government are also called ‘gilts’ or ‘gilt-edged securities’, while securities issued by companies are known as corporate bonds.

Art, fine wine and other collectibles as investments

Collectibles like gold and jewellery, art, antiques or fine wine can make interesting investments and might be a good way to diversify – but you need specialist knowledge to get it right, and you might spend a lot on storage, maintenance and insurance.

Investing in shares

Shares are one of the four main investment types, along with cash, bonds and property. They carry risk, but they can offer the highest returns. This guide explains how they work, and what the risks can be, so you can decide whether shares might be right for you.

Tracker funds and exchange traded funds

Tracker funds and exchange traded funds (ETFs) are investments that aim to mirror the performance of a market index. A market index follows the overall performance of a selection of investments. The FTSE 100 is an example of a market index – it includes the 100 companies with the largest value on the London Stock Exchange.

When should you start investing?

If you’ve got plenty of money in your cash savings account – enough to cover you for at least six months – and you want to see your money grow over the long term, then you should consider investing some of it.

The right savings or investments for you will depend on how happy you are taking risks and on your current finances and future goals.

Returns

Returns are the profit you earn from your investments. Depending on where you put your money it could be paid in a number of different ways:

• interest (from cash deposits and fixed interest securities)
• dividends (from shares)
• rent (from properties)
• the difference between the price you pay and the price you sell for – capital gains or losses

In general, you’ll get lower returns from your investments if you want:
• easy access to your money
• a secure guarantee that you’ll get it all back

With an instant access cash account you can withdraw money whenever you like and it’s generally a secure investment. The same money put into fixed interest securities, shares or property is likely to go up and down in value but should grow more over the longer term, although each is likely to grow by different amounts.

There’s no guarantee of how your investment will perform. In the case of company shares, it depends on the company’s performance and the economic outlook. With funds, the chance of losing your money or making a big profit depends on the mix of different investments in the fund.

A way to spread your risks is to choose a range of different ‘asset classes’ for example, choosing a fund that invests in a mix of cash, shares, bonds and property, or investing in several funds each investing in a different one of these asset classes.

Risks

None of us likes to gamble with our savings but the truth is there’s no such thing as a ‘no-risk’ investment.

You’re always taking on some risk when you invest, but the amount varies between different types of investment.

• Money you place in secure deposits such as savings accounts risks losing value in real terms (buying power) over time because the interest rate paid won’t always keep up with rising prices (inflation).

• On the other hand, Index-linked investments that follow the rate of inflation don’t always follow market interest rates – and if inflation falls you could earn less in interest than you expected.

• Stock market investments may beat inflation and interest rates over time, but you run the risk that prices may be low at the time you need to sell – this could result in a poor return or, if prices are lower than when you bought, losing money

When you start investing, it’s usually a good idea to spread your risk by putting your money into a number of different products and asset classes. That way, if one investment doesn’t work out as you hope, you’ve still got your others to fall back on. This is called ‘diversifying’. Find out more in our guide below.

Next Steps

With so many different types of investment, choosing the right type one for your particular needs can be quite daunting, choosing the wrong one could prove very costly. Our advisers at Tuto have been helping people with their investment options for many years, so give us a call or send an email and we will be happy to discuss your requirements.
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