Types of investments

We can classify investment into the following types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits. Once you are familiar with the different types of assets you can begin to think about piecing together a mix that would fit with your personal circumstances and risk tolerance.

• Growth investments are more suitable for long term investors that are willing and able to withstand market ups and downs.
• Shares are considered a growth investment as they can help value of your original investment grow over the medium to long term. On shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.
  Also known as equities, shares have historically delivered higher returns than other assets, shares are considered one of the riskiest types of investment.
• Property is also considered as a growth investment because the price of houses and other properties can rise substantially over a medium to long term period. However, property can also fall in value and carries the risk of losses. It is possible to invest directly by buying a property but also indirectly, through a property investment fund.
• Defensive investments are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments.
• Fixed interest best known investments are bonds, which are essentially when governments or companies borrow money from investors and pay them at a rate of interest in return.
• Bonds are also considered as a defensive investment, because they generally offer lower potential returns and lower levels of risk than shares or property. They can also be sold relatively quickly, like cash, although it’s important to note that they are not without the risk of capital losses. Investors, are often advised to adopt a particular investment strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk.

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