Getting Started In Investing
March 3, 2010
3. What Are Your Options?
How on earth do you choose an investment from the thousands of products that are available? Skimming through the weekend papers, we are bombarded with impressive-sounding numbers and pretty pictures. Where do you start?
A little background knowledge can help clear the fog. Despite the thousands of products on offer they all consist of just four basic investments, albeit in different quantities. They are cash, bonds, property and shares.
Safe, dependable cash. You know where you are with cash. You get paid interest too -- but take off tax and then adjust for inflation and you're usually left with next to nothing.
Bonds are essentially loans that can be bought and sold. The most common are government loans, or gilts. But you can also trade corporate bonds, which are loans to large companies. The capital value of bonds moves up and down in relation to interest rates. Over the long term, gilts and bonds should return slightly more than cash, but not by much.
Many people believe that property is the best investment of all thanks to rising house prices over the last few decades. The value of your house may have leapt over the years, but don't forget all that money you have paid out to fund the mortgage!
Just how well property has done is actually quite hard to calculate however (you need to include bills for repairs and maintenance for example). In addition, it can be awkward to buy and sell -- you can't sell little bits here and there when you need the money.
Most people already have a large chunk of their assets in property, by virtue of owning their own home. So, for the purposes of this guide, we're going to ignore it from hereon in.
Shares, or equities, mean investing in a company like Vodafone (LSE: VOD), Unilever (LSE: ULVR) or Tesco (LSE: TSCO). You can buy shares in individual companies yourself, or you can buy a fund that invests in a broad range of companies on your behalf.