Nowadays, investors have a wide range of investment vehicles to choose from, and thus it may be difficult for first-time investors to determine which may be the proper ones according to their needs, budget, and risk profile. However, remember that investing is itself a risky business, so you should not invest without doing the proper assessments and being thoroughly informed.
That said, let’s have a look at the most common types of investments in the UK.
A stock, also known as share or equity, is a portion of a company’s capital. Generally, stocks are bought when their value is expected to increase over time and in order to receive dividends from profits paid out to the company’s shareholders.
Thus, the success of the investment depends primarily on the performance of the company, but it can also be influenced by how markets view the country in which the company is mainly active. That’s why is important to assess the company’s earnings and revenues and to determine which are the companies whose stocks are growing in value: this way, you’ll be able to identify ten of the best dividend stocks in the UK according to your needs.
Bonds are part of the debt of a company or a state government. Unlike the case with stocks, by acquiring bonds you do not become a shareholder of a company, but you become their creditor.
The return on this type of investment is generated by the fact that the creditor will be repaid the bond value with the addition of interest.
So, these kinds of instruments are generally low-risk but, like all investments, they are not entirely safe. Indeed, in the event of default, a company would be unable to repay all creditors, including bondholders.
Deposits are probably the most familiar and the most common form of investment among small savers.
Basically, you deposit your money with a bank for a specified period of time, actually making a loan to the bank. At the end of the period, you will access your deposit and receive the interest accrued during this time.
Deposits are considered a low-risk and low-reward form of investment: the amount of the return mainly depends on the amount of time you are willing to not use your money.
Another traditional form of investment are properties, which include real estate such as houses, apartments, stores, offices, industrial buildings or hotels.
In this case, the investment comes from the income generated if they are rented out or, as with stocks, from being able to sell them if their price rises over time.
5. Mutual funds
Mutual funds are managed by special companies that pool the money of multiple savers and invest them as a single asset, either in financial activities, so stocks or bonds, but also in properties.
The logic is the same as investing directly with your own capital in stocks, bonds or properties. However, in this case the investment is diversified and would be managed by experienced professionals.
Although relying can make us feel safe, there are still risks associated with the volatility of investments.
These are just some of the possible forms of investment nowadays. Probably the most familiar and established ones. Actually, there are other forms of investment, such as trading, cryptocurrencies, Exchange-Traded Funds (ETFs) or commodities and many more.
To sum up, the world of investing is particularly complex and always carries a degree of risk, so it is advisable not to improvise, but to rely on experts.