Investment
As an investor, firstly you need to decide what type of assets you want to invest in. Different assets have different risk profiles so your attitude to risk should determine what you are prepared to invest in. Generally speaking the more risk you are prepared to take when it comes to investing the higher the potential rewards. In investing in a range of different assets you can mitigate investment risk. An example of mitigating risk could be through collective investments or investment funds - see our fund supermarket - which provides a way for investors to access a range of different asset classes cost effectively.
Secondly as an investor you are hoping for a return on your money. If you have cash in the building society or bank typically you will look at the interest payment as a percentage of the sum deposited known as the interest rate e.g. if you deposit a £1,000 in the bank and they pay you £30 gross p.a. then the interest payment is 3%. Likewise for a company share where typically you can expect an annual dividend (although this is not guaranteed) the return is determined by the annual dividend divided by the share price quoted on the stockmarket e.g. A company makes a combined annual dividend of £0.07p per share and the share price is £1.00, gives a return of 7%. Unlike cash earning interest in a bank deposit account with a company share there is also the potential for capital appreciation. So if the company share was bought for £1.00 and rises to £1.05, then the overall return is 12%. With company shares prices can go down as well as up so if the share price fell to £0.95p then the overall return would be 2%. The return you can expect will be determined by the assets you invest in.
Thirdly time is an important consideration when investing. Due to the impact of inflation over time a £1 today is worth more than a £1 a year from now (the only caveat to that is if there is a period of deflation). If you are prepared to lock money away for a long period of time you should be rewarded for this e.g. banks offering fixed rate bonds will pay greater rates of interest the longer you are prepared to commit money typically 1 to 5 years. For some types of security such as government gilts which have a finite shelf life the nearer you are to the redemption value the more likely this will be reflected in the price you pay for the asset.
Fourthly as an investor you need to consider how important access to capital is. Different assets have varying degrees of liquidity. If you invest in property then if you require capital at short notice this may be problematic. This might also be true of assets such as art and antiques where finding willing buyers may take time. For many types of asset including bonds, shares and commodities there are well established trading markets which makes it easier to realise capital quickly if required.
Our website provides a range of options for investors to consider. If you are unsure of what investments are suitable for you you should seek financial advice.