Understanding investments

All investments are not equal, and knowing what to invest in, when to invest in it and how much to invest are difficult questions to answer.

A number of factors should be considered before deciding on what kind of investment is most suitable for you. These include the purpose of the investment, the length of time your money can be tied up for and your attitude to risk. As all investments carry some degree of risk, we recommend that you seek professional financial advice to find the best strategy to achieve your long- or short-term goals.

This section is designed to provide some basic guidelines to help you understand investing.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

Investment goals

Everybody has investment goals, from the old adage of saving for a rainy day to planning a comfortable retirement. It's important to define your investment goals at the outset, as the choice of investments will vary depending on what they are. If you are unclear about your investment goals, this section provides some examples that may help you.

Visit investment goals

Essential questions

Once you have defined your investment goals, knowing what type of investment to choose will very much depend on your personal circumstances, your attitude to risk and a number of other factors.  We've put together a short series of questions for you to answer to help you get started.

Take a look at these essential questions

Getting advice

Starting a serious long-term savings project can be daunting, so it is essential that you get good advice on the best plans and funds to choose.

A large network of professional financial advisers exist in the UK to arrange financial solutions for their clients.

Visit getting advice to help locate your nearest adviser

Asset classes explained

The most common asset classes are equities, bonds and cash.

  • Equities are shares in companies that are traded on stock markets. Investment in shares exposes you to the potential to lose some or all of your money.
  • Bonds are essentially loans to governments and companies that pay fixed interest rates over a set period, after which the loan must be repaid.
  • Cash is simply money placed on deposit at banks or in bank securities to earn variable rates of interest. You could see the spending power of your money fall if inflation is higher than the interest rate you receive. This is known as inflation risk.

Learn more about asset classes

Collective investment schemes

A popular way to gain access to a wide range of assets is to use a collective investment scheme. This allows investors to pool together their contributions, and to share the costs and benefits of investing. The most common collective investments are unit trusts and investment trusts.

A common concern is that you may lose the money you invest i.e. your capital.

Read about the benefits of collective investments

Active and passive investing

Investment funds are either actively or passively managed. In an active fund, the manager uses his or her skills to pick the best performing stocks to try to beat the index that they belong to. A passive fund simply tracks the index and seeks to match its performance as closely as possible. 

There’s a strong chance the client could end up with a fund that fails to deliver the return.

Learn about active and passive investing