Below is just a short overview of some of the options available to you as a regular, occasional or lump sum investor.  The choice depends on how much you want to invest and for how long together with your need for income, capital growth, security or easy access.

Non-equity Based Investments:

Bank Accounts

These offer deposit-based schemes that are usually linked to the current base-rate.  The longer your money is invested and the more you invest the better the interest rate is likely to be, your money is secure, but real growth prospects are poor.

Bonds

Bonds are effectively a ‘debt investment’ which the investor loans money to a company or government that borrows the fund for a defined period of time at a specified rate.

The ‘indebted’ company or government issues a certificate or ‘bond’ that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date). Interest on bonds are usually paid every six months.  Generally speaking the higher the rate of return the bond offers the more risky the investment.

It is wrong to consider Bonds as ‘guaranteed investments’ as there have been times when bonds have failed to pay back the original capital (defaulted) therefore it is very important for investors to research a bond just as they would any other investment.  The bond rating given by an independent research company like Standard and Poors will help to decipher the default risk.  

Equity Based Investments include:

Shares

Carrying a high level of risk – share prices fluctuate on a daily and fortunes can be made and lost virtually overnight!  Over the longer term however returns often work out higher than safer investments and you may receive dividends from the companies you invest in.  A good choice for the smaller investor is to spread risk by investing in unit trusts or insurance company investment plans.

Investment Bonds

Investment Bonds are a versatile investment of a single premium.  The product offers the potential for capital growth and tax efficient income withdrawals.  Money is invested in funds owning real assets such as stocks and shares, gilts, commercial property, bonds and cash.  These can offer a specialist investment manager who manages the investments of the fund while others offer you the opportunity (probably with the help of your Independent Adviser) to select the funds yourself.  Whilst they can offer instant access they are best considered as medium to long term investments.


Unit Trusts

Collective investments where a portfolio of investments is managed on behalf of ‘unit holders’.  No dealing charges are payable but the investment management company will charge a percentage of the value of your initial investment each year as well as an initial charge.  Most unit trusts pay a dividend or distribution several times a year, which can be re-invested to purchase additional units or taken as an income.  This way investing in stocks and shares spreads the risk, although the value of the units and any income may go down as well as up.