Getting started with Investment
Investments can be complex with so many choices to be made. Understand the different ways to invest with our Getting Started guide.
Different ways to invest
You can either invest as an individual, buying shares, bonds and property or you can invest in a collective investment. This is where your money is collected with that of other investors in order to buy a large portfolio of assets, which is then professionally managed, an example of which is a stocks and shares ISA. Collective investment has the advantage of enabling you to spread risk, although the value of investments can go down as well as up and you may get back less than you invested.
When you buy shares in the stock market, known as equities, you are buying a stake in a publicly listed company. When a company offers its shares for sale to the public they effectively 'float' on the stock market. Generally, when the value of a company rises, your shares in the company are worth more and if it falls so does the price of your shares.
Governments or companies issue bonds in order to raise money. When you buy them you get a guaranteed agreed rate of interest over a fixed period, plus the price per bond. While they are generally regarded as lower risk investments than equities, the level of risk obviously depends on the market conditions and the stability and economic performance of the bond issuer. Bonds are often traded on the market, as investors look for the best available rates of interest for their money. The downside is that you may get back less than you invested.
Investing a lump sum means your whole amount is invested in the stock market straight away. A regular payment enables you to build your investment gradually, keeping payments at a level you are happy with.
You can invest for as long as you want, but there are a few points you need to bear in mind. Short-term investment in the hope of making big gains quickly is risky. You should be looking to invest for at least five years and the longer you leave your investment, the more likely you are to see a return, but the downside is that you may get back less than you invested. You should also consider your attitude to risk when choosing an investment.
Your choice depends on a number of factors, including your attitude to risk, how much access you need to your money, the length of time you want to invest and what you want to achieve.