The 'no more than you need to know guide' to investments

If you’re considering using some of your savings for investments, then you’ll find this guide indispensable.
It tells you in simple terms how one of the UK’s most popular form of investment works and more importantly, how it can work for you.

Although many people like the potential rewards that stockmarket investments have to offer, some potential investors are put off by the word ‘stockmarket’. That’s regrettable. Because the reality is, that the stockmarket is not actually the ogre that some people perceive it to be. And that’s most certainly not the case when the risks are spread and investments are managed diligently and professionally!

Why people like funds

Rather than buying stocks and shares directly, many people prefer to invest in the stockmarket through what’s known as ‘collective investments’. There are two kinds of Collective investments: Unit Trusts and OEICs (Open Ended Investment Companies). Collective investments are also called ‘funds’ and funds are what this guide is all about - how they work and what they have to offer you.

Funds are to do with reducing stockmarket risk. It is the range of a fund’s investments – sometimes as many as two hundred - that makes collective investing fundamentally different to investing in individual shares. By investing in many different businesses, the fund manager is aiming to manage or ‘spread’ the risks– i.e., when some of the fund’s investments aren’t doing that well, others hopefully are, so that one investment compensates for the other.

A reminder why so many savers eventually become Investors

When you deposit your savings with a bank or building society you know that your money is almost as secure as it can possibly be. But there is a downside, which is that the long term returns from savings accounts aren’t as high as the returns you can expect from investments. And once you make allowances for inflation, the returns from your deposit account are, in real terms, substantially reduced!

That’s not to say that investing is all plain sailing. The price you pay for the better returns that funds can provide is that the value of your investment on the way up is almost certain to go down on the way there! And that’s one of the big issues that all investors, big and small, have to come to terms with when they first invest. But don’t let that put you off. There are funds that potentially could give you more than the deposit account but are almost as stable.

Three key points

Before doing anything else, you should consider the following for a moment or two. It will help you decide whether investing really is for you or not…

Like everything else in life, to get something out of investment, you have to put something in. So what are your feelings about risk? Would you want to go ‘all out’ for big rewards and take big risks? Maybe you’d to adopt a ‘give and take attitude’ as most seasoned investors do. Perhaps you hate the idea of taking any kind of risk, or you’re expecting something for nothing, in which case you should probably stick to saving and avoid investing altogether.

Be realistic in terms of timescales.

Investing is not a way to get rich quickly. History shows that the more time you can give your investments to grow, the better they’ll do for you. In an ideal world you should be prepared to wait for as long as 10 years. But it wouldn’t be unreasonable to expect to see some relatively worthwhile returns after five years or more. If however you think you might need to raid your investment pot every week, then leave your money in the bank

Know what you want of your investments – do you want to build up a large capital sum over time or are you looking for a regular income ASAP? Or perhaps you’d like a combination of both? You can always change your investment aims, as and when your needs and circumstances dictate that you should: in investment, nothing’s locked in stone!