What are investments?
However, investments come with element of risk – while you could end up earning a far greater return on your money than with a savings account or ISA, you may not earn any interest at all or even get your original investment back.
The main types of investment
There are many different types of investment available, and knowing which is which and choosing between them can seem very confusing. On the most basic level, you can invest in four main asset classes:
When you buy a stake in, or ‘share’ of a company, the value of your investment grows or falls as the value of the company increases or decreases. You may also receive a dividend from the company’s profits, depending on the company you invest in, or capital growth, where you sell your shares for a higher price than you paid for them – find out more about shares.
Bonds and gilts
With a bond, the money you invest is given as a loan to a company or the government. As a lender, you are paid interest on the loan amount, and as such, bonds are more suitable if you require a regular income, rather than long-term capital growth.
Bonds where the money is lent to the government – known as gilts – are considered to be safer and therefore generally pay a lower rate of interest – find out more about bonds and gilts.
With a property investment, you stand to receive a regular income in the form of rent from a tenant, as well as long-term capital growth if the property increases in value – find out more about investing in property.