Choosing what to invest in

When you invest, aim to choose investments that broadly match the amount of risk you are prepared to take with your savings.

The risk associated with different investments depends on how volatile they are. For example, a savings account paying interest at a fixed rate has no volatility – your rate of return is always positive and never varies over the time of the investment.

In contrast, investments in company shares (known as equities) rise and fall over time. You could experience losses, particularly over shorter time periods, or you could make attractive gains, particularly over the longer term.

The prices of other investments, such as bonds, demonstrate different degrees of volatility. Choosing whether to invest in equities or bonds – or a mixture of the two – will expose you to different levels of investment risk and provide the potential to earn different levels of return.

Types of investment

Bonds are IOUs issued by governments, companies and other borrowers to raise money for a certain period of time. In return, the borrower pays the bond holder a regular income over the lifetime of the bond and promises to repay the lender at the end of that period.

Bonds can be issued by a range of different borrowers, including governments and companies. They can be used by investors looking to generate a regular income or to help their money grow.

Shares, or equities, are issued by companies to raise capital. Shareholders share in the profits of the company mainly through dividend payments and benefit from any increase in the value of the company's assets.

Shares are listed on the stock market. Their prices fluctuate with changes in the company's performance, but also due to changes in overall market sentiment.

While the overall stock market has tended to rise in value over time, there are no guarantees that future returns will be as strong as in the past. Shares may also be subject to periods of intense short-term volatility. Spreading your money across a wider range of shares can help to manage risk and result in smoother returns over the long term.

Multi-asset investing means spreading your money across a range of equity and bond investments (and often other assets, such as property, infrastructure or commodities).

Different markets and different types of investment perform differently as economic conditions change. Multi-asset investing spreads your risk and can help you achieve smoother long-term returns.

Choosing how to invest

Investment funds are a time-tested way for investors to access global markets. Funds allow you to invest in a diversified portfolio of stocks, bonds and/or other assets, usually by pooling your money with lots of other investors.

There are a wide range of investment funds to choose from, which means you can access all sectors, regions and types of investment. You can use funds to target growth, income or both. And because funds are easy to buy and sell, you can easily add to your investment, change your strategy or take out your money when the time is right.

Types of investment fund

There are several types of funds to choose from. Although on the surface all investment funds appear similar, there are some important differences.

OEICs (Open Ended Investment Companies) allow you to pool your money with other investors so that you can invest more cost-effectively in stock and bond markets. As their name implies, OEICs are “open-ended", which means they can issue more shares each time someone invests. Therefore, you can always buy or sell (and have access to your money) whenever you want.

ETFs (exchange-traded funds) are a type of investment fund in which investors have access to a broad portfolio of investments. Unlike OEICs, ETF shares are traded on an exchange and can be bought and sold throughout the trading day. ETFs combine relatively low cost access to markets with ease of access, while also providing a high level of transparency so investors can always see where their money is invested.

Investment trusts are investment companies that pool investors’ money to invest in shares, bonds or other types of investment. Investment trusts issue a fixed number of shares, which are publicly traded on the London Stock Exchange. They can borrow money so that they can increase their exposure to stock markets and therefore potentially enhance returns. As stock market-listed companies, investment trusts also have independent boards to represent your needs as a shareholder, meaning you get the same level of protection as the shareholders of any other public limited company.

You can invest via third party providers or by contacting a professional adviser. You should, of course, only consider investments that are right for you. If you are in any doubt about the suitability of an investment, please speak to an independent financial adviser.