Types of Investment

There are several different types of investment, and so it is important that you know about each one to be able to decide which is right for you.

Investing in shares

Investments chart

A share is a stake in a particular company. Usually the most experienced investors buy and sell shares.

Advantages:

  • Investors can pick the exact company in which they invest.
  • Shares of a company which performs well can be extremely profitable.

Disadvantages:

  • Making the right decision can be difficult as it requires detailed knowledge of the company – you are calling whether it will be a success in the future.
  • Huge amounts of money can be lost by making the wrong decision, if shares fall in value.

Investing in funds

When you invest in a fund, your money is controlled by a fund manager. The fund manager invests in a wide range of assets to spread risk.

Advantages:

  • Funds tend to be lower risk overall.
  • Fund managers tend to be experts in investing, so funds are ideal for beginners.

Disadvantages:

  • Returns may be lower than investing in one well-performing share.
  • Fund managers charge fees for their expert services.
Fund manager

Investing in gilts and corporate bonds

Gilts are bonds issued by the Government. Corporate bonds are issued by firms. When you buy a gilt or bond, you lend money to the Government or company in return for fixed payments over a specific time period. When this time period ends, you are paid back the original value of the bond.

Advantages:

  • Bonds, especially gilts, are usually less risky compared to other forms of investment.
  • Returns are guaranteed.

Disadvantages:

  • Gilts and bonds are less profitable compared to other forms of investment.
  • They are heavily influenced by interest rates.
  • The real value of your investment will fall if the rate of inflation exceeds the interest paid.

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