What Are Your Options?
Published on:
March 4, 2008
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. These four are cash, bonds, property and shares.
Cash
Safe, dependable cash. You know where you are with cash. Currently you can get a return of between 4% and 5% on the highest-paying accounts. That's pretty good but take off inflation and the picture looks less rosy. In fact the gap between savings rates and inflation is very high at the moment compared with the historical average so don't be surprised if savings rates start to come down in real terms.
Bonds
Bonds are essentially loans that can be bought and sold on a market. 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 they should return slightly more than cash, but not much.
Property
Many people believe that property is the best investment of all thanks to constant reports of rising house prices. 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.
Property has done pretty well down the years, although exact figures are difficult to come by. But as far as the individual is concerned it is awkward to buy and sell. In addition, you can't sell little bits here and there when you need the money. You also need to spend money to maintain property, unlike cash, bonds or shares. It does have its attractions but it's a specialist area and not really suitable as an investment for the majority of people.
Shares
Shares, or equities, mean investing in a company like Vodafone Group (LSE:VOD), British Telecom (LSE:BT.A), Lloyds TSB (LSE:LLOY), 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.
