There are many different asset types in which you can invest, each with their own levels of risk and potential reward. As a rule of thumb, high growth potential means high risk, and vice versa.
Securities come in three varieties: equities, bonds and derivatives.
- Equities are stocks and shares in companies. Historically they have performed better than most other investments over time, but are volatile – they can go down as well as up.
- Bonds are essentially loans in which you are the lender, receiving your money back with interest over a fixed period of time. Generally lower-risk than equities, though some are more high-risk than others.
- Derivatives are contracts that derive their value from the performance of another asset. Even seasoned investors should approach these complex products with caution.
Commodities are physical things like metals (e.g. gold), resources and farm produce, which can sometimes form part of an investment portfolio. Relatively high-risk, their big advantage is that they perform independently from equities, so can be a good way to balance out your stocks and shares.
Collective investments may appeal to you if you want to invest in a range of different assets but don’t have the time or knowhow to build a portfolio yourself.
- OEICs (Open-Ended Investment Companies) are companies that invest in assets (such as securities) on your behalf. You buy shares in the company itself, which rise or fall depending on its performance.
- Unit trusts are similar to OEICs, in that you buy units of an investment funds that invests in a range of different assets.
The advantage of overseas investments is that they could grow faster, as they may not be subject to such strict regulations as in the UK. The disadvantage is the same – weaker regulation means you have less protection and run a much greater risk.
Find out more about the different investment types from the menu on the left. Your adviser can help you decide on the best products for you from across the whole of the market. Find an IFA here.