Understand your investment choices
When you make your investment choice, the key is to select investments that can help you achieve your objectives, while also keeping risks at a level that you are comfortable with. Investment funds provide an efficient and cost-effective way to access a wide range of investments.
Bonds
Bonds (or fixed income securities) are IOUs issued by governments, companies and other borrowers to raise money for a certain period of time. In return, the bond issuer promises to pay the bond holder a regular income over the lifetime of the bond, and to repay the bond holder when the bond matures.
You can use bonds to generate a regular income or for capital growth. They are typically less volatile than equities, because of the fixed level of income they provide, but this means prices can be sensitive to changes in interest rates as well as the amount of supply of new bonds. Prices of corporate bonds and bonds of higher risk issuers, such as some emerging market governments, will also be driven by any change in the ability of issuers to repay their debt.
Shares (equities)
Shares are issued by companies to raise capital. When you buy a share (or equity) in a particular company, you have a stake in the company’s success. Although there are no guarantees, share prices have tended to rise in line with the long-term growth in company profits, providing the potential to grow your money and beat inflation. Some companies also make regular cash payouts (dividends) to shareholders, providing the chance to earn a regular income.
Shares are listed on the stock market, so prices will be driven by a company's performance and by any short-term changes in overall market sentiment. Staying invested for the long term (at least five years, for example) can help you ride out any short-term volatility, as can investing in a wide range of shares (known as diversification).
Multi-asset investing
Multi-asset investing means spreading your money across a range of different types of investment, or asset classes, usually across global markets. Typically, multi-asset investing (sometimes known as balanced investing) focuses on shares (equities) and bonds, but can also include many other assets, such as property, infrastructure or commodities.
Different markets and different types of investment tend to respond differently as economic conditions change around the world. As a result, multi-asset investing can help balance your overall levels of risk and has the potential to generate more consistent returns, or income, over time.
Gaining exposure to different types of investment
Investment funds provide a time-tested way for you to access the growth and income potential of global markets. Funds allow you to invest cost-effectively in diversified portfolios of equities, bonds (or other types of investment), usually by pooling your money with lots of other investors.
There is a very wide range of investment funds to choose from, which means you can access all sectors, regions and types of investment, from low-risk global government bond funds to riskier hedge funds - and everything in between.
You can use investment funds to target capital growth, income or both. And because most funds can be bought or sold daily, you can add to your investment, change your strategy or sell when the time is right (although there are costs involved).
Types of investment fund
OEICsAn Open-Ended Investment Company (OEIC) is a type of investment fund that pools your money with other investors to invest in a portfolio of equities, bonds or other types of investment more cost-effectively than each investor can individually.
OEICs are "open-ended", which means they can issue more shares each time someone invests. This allows you to buy or sell your shares whenever you want as the company can expand or shrink the number of shares as required. OEICs can offer both regular income paid as dividends, and the potential for capital growth.
Investment trusts are investment companies that pool investors’ money to invest in equities, bonds, or other types of investment. However, they differ in a few important ways.
First, they issue a fixed number of shares, which means investment trust prices reflect market demand as well as the value of the underlying investments. Second, investment trusts are allowed to borrow money, known as gearing, which fund managers can use to invest in attractive securities. The rules on dividends differ from open-ended funds too, enabling some investment trusts to maintain a consistent dividend from income reserves through a variety of market conditions.
A Société d’Investissement à Capital Variable (SICAV) is a type of fund that pools your money with other investors so you can invest more cost-effectively in equity and bond markets. They are "open-ended" funds, which means they can issue more shares each time someone invests, allowing you to buy or sell (and get access to your money) whenever you want. This type of fund can offer both regular income paid as dividends, and the potential for capital growth.
An exchange-traded fund (ETF) offers access to a broad portfolio of equities, bonds and other types of investment. ETF shares are traded on an exchange, and can be bought and sold throughout the trading day, meaning you can see the price you will pay when you buy one (whereas open-ended funds are priced once a day so the price may not be confirmed until after you place the order).
ETFs tend to have low trading costs, allowing you to access markets relatively affordably and easily. They also provide a high level of transparency so you can always see where your money is invested.
Choosing how to invest
Whether you have a lump sum to invest, or if a Regular Savings Plan is the best route for you, it’s easy to access the growth and income potential of investment funds via an online investment platform, or by contacting a professional adviser. You can also choose to invest via a tax-efficient wrapper, such as an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP).
Lump sums
Lump sums are a popular way to invest. If you have a large lump sum, it may be worth considering staggering the investment to reduce the impact of market movements.
Regular Savings Plans
Regular Savings Plans provide a simple and affordable way to build your savings over time. You can invest from as little as £50 per month with some providers.
Individual Savings Accounts (ISAs)
An ISA is a tax efficient wrapper that allows you to invest up to £20,000 a year tax free (2021/22). ISAs provide an easy way to make regular or one-off investments.
Investing through a Self-Invested Personal Pension (SIPP)
A SIPP is one of the most tax efficient ways of saving for retirement, either via regular or one-off investments.
