This post explains about different types of investment, how they work, and some things you should think about before buying them.
When investing, you take risks to increase your chance of getting higher returns on your money, especially over the longer term (usually ten years or more). This section will explain some of the most common types of investments, how they work and what you need to think about before choosing one or more. Most investments are available to those over 18, but always check with the provider before you buy, as some may be specific to certain age groups.
What are investments?
There are different types of investment. Each has its own level of risk but, basically, you take a risk with your money by investing in assets that could rise or fall in value. There is generally no guarantee you will make money or even that you will get back the same amount you invested in the first place. Investments are different from savings – they are typically designed for the longer term and involve different types of risk.
Before investing, it’s usually a good idea to have sorted out your debts, made sure you’ve looked at protecting yourself against unforeseen events, built up some savings and arranged your pension (see Pensions – your pension is also an investment).
And, once you start investing, it’s highly advisable to spread your risk – see Diversification.
How you’re protected?
By law, most financial services firms must be regulated by the Financial Services Authority (FSA), the UK’s financial services regulator, before they can do business in the UK. The FSA holds a Register of all authorised firms currently doing business in the UK as well as those authorised in another European Economic Area (EEA) state. Always check that the firm you’re dealing with is on the FSA Register, see Using the FSA Register. This means that you will be able to use the complaints and compensation procedures if something goes wrong.
Other sources of information
Many organisations provide general information about investments.
‘Introducing investment’ – a booklet from the Investment Management Association (IMA).
Investment factsheets and brochures – factsheets covering different aspects of investing in unit trusts and open-ended investment companies (OEICs) from the Investment Management Association (IMA).
An online guide to investment companies – from the Association of Investment Companies.
Private investor area – online information at the London Stock Exchange.
‘About share dealing’ – online information from the Association of Private Client and Investment Managers (APCIMS).
Information on starting and running an investment club – from Proshare.
Or you may wish to seek professional advice from a financial adviser, fund or investment manager or stockbroker.