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At a glance

  • Investments include buying shares, investing in property or fixed term securities or bonds
  • Investors can choose managed funds such as Investment trusts, OEICs, unit trusts and ETFs
  • Investments can be wide ranging including gold, art, antiques and wine

What is an investment?

An investment is where you buy or invest your money into an asset to try to get a return. When you save with your bank or building society your capital is protected and not exposed to any risk, you can even guarantee your returns when using a fixed rate bond. However, returns on savings are currently low.
Investments are different, they are for the long-term and your capital may be at risk. This means you could potentially not receive any return on the money you have invested or lose some of your initial investment, however the potential for better returns than investing with a bank or building society is significantly greater. Different types pf investment include:

  • Shares – this is where you buy shares in a company with the potential to receive a dividend or to sell these to generate a profit, you can also choose to invest in managed funds such as an Investment Bond or Open Ended Investment Company (OEIC) that select the companies on your behalf with the aim of paying you a return
  • Investment property – you invest in buying physical property and then rent these to generate an income or develop them to improve their sale value
  • Fixed interest securities or bonds – these are a loan/investment made to a government or a company

Other types of investments include your pension, such as a self-invested personal pension, investment ISAs, structured deposits, endowments and investing in gold. You can also invest in antiques, art, wine and in start-up companies through crowd funding sites.

How to invest in stocks

How you start investing in stocks depends on whether you want to be hands on managing your stock portfolio or prefer to use a form of advice. If you prefer to be hands-on then using an investment platform will allow you to choose which stocks and shares and investment funds you want to invest into. If you prefer to be supported in making your investment decisions and are a high net worth individual then you may want to use a traditional financial adviser, who will also be able to advise you about your retirement plans and other financial decisions. However, the fees for this advice can be substantial. An alternative is to use a robo-adviser that will select funds based on your answers to a series of questions about attitude to risk and your investment goals. Of course, robo-advice is not as personalised as dealing with a financial adviser, but the fees are significantly less.
Our guide explains how investment platforms work.

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What are the different types of investment funds?

An alternative to buying specific shares in an individual company is to make an investment into an investment fund. These funds include multiple investors that pool their funds and are managed by a fund manager that selects how the money is invested to generate a return. Investors can choose from investment trusts, unit trusts, OEICs, ethical funds and ETFs. We explain more about these below.

Investment Trusts

Investment trusts are companies that invest in a range of asset classes and then list on the stock exchange. Investors can then purchase shares in the Investment Trust. They are closed-ended funds, meaning that there is a limit to the number of shares that can be purchased. The value of the fund is based on the underlying assets in the fund and the effect of investors buying and selling their shares. If more people are selling shares in an investment trust than buying then the fund can move into a discount, meaning the share price is less than the share value of the underlying assets. If the opposite is the case, then a premium is applied to the share value. This gives investors the opportunity to not only potentially benefit from improved performance of the fund buy also in movements in trading of the fund’s shares.


Unit Trusts

A unit trust allows many investors all to buy units in a managed fund. These funds are open ended meaning there is no maximum limit on the amount invested or the number of investors. The money in the fund is used by the fund manager to invest in different types of assets. Each fund will have a range of asset classes, industry sector or investment regions into which it is prepared to make investments. A Unit Trust can be active, where the fund manager selects the assets in the fund or passive where this tracks against an index, such as the FTSE 100.

Open Ended Investment Companies (OEICs)

OEICs are an investment company domiciled in the UK and listed on the London Stock Exchange. They are like Unit Trusts, being open ended and with investors buying units in the fund. The value of an OEICs share price is largely based on the value of the underlying assets in the fund and these are priced once a day. When you invest into an OEIC your money is pooled with other investors and then invested by the fund manager into a range of equities, bonds and other securities. These types of funds can change their investment criteria and fund size based on their investment strategy at the time. They are open ended meaning new shares can be created to meet demand for investment into the fund. They usually have annual management fees.
OEICs can be active or passive, with stocks either proactively managed selected for the fund or following a market index, like the FTSE 100.

What is an Exchange Traded Fund (ETF)?

An ETF allows you to invest in a range of bonds and shares that are listed on the stock exchange trading like company stock. ETFs often track market indices or create unique indices for them to track against. There are no premiums or discounts with investors looking for gains through improvements in the value of the shares they have purchased.

What are ethical funds?

Ethical funds will not invest in activities deemed to be harmful to society or the environment. They do this by screening out those that are negative, such as tobacco, gambling, weapons, animal testing, deforestation, poor human rights or poor employee rights. They will also look for those investments that support sustainability and operate to high ethical standards.

What are the best investment funds in 2020?

Moneyfacts reviews the investment market every year and combines this with the votes of investment and pension industry experts to decide which providers have excelled.
The best investment fund provider in 2020 was Rathbone Unit Trust Management, followed by Vanguard Asset Management as highly commended. The best investment trust provider was Aberdeen Standard Investments, followed by Baillie Gifford as highly commended.

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