First principles of investing

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3. The major asset classes

Each of the different asset classes has different characteristics in terms of their risk profile and level of potential reward. To achieve your investment goals at a risk level you are comfortable with, you need to know what those characteristics are:

• UK equities
  These are the quoted shares of companies in the UK. They can offer the potential for capital growth. The return achieved by UK equities, when measured over the long term, has outpaced both price and earnings inflation.
• Overseas equities
  Investment overseas can provide exposure to the growth in foreign markets including younger, fast growing economies. However, these shares may also expose you to different economic and political risks as well as currency fluctuations.
• Bonds/gilts
  UK bonds are issued by borrowers. Government bonds are known as gilts. In return for the loan of your money, the borrower (with some exceptions) pays a fixed rate of interest and repays an agreed capital sum on a specified date.
• Cash (deposits)
  Deposits can protect your original capital and may be useful for easy access money. They do not provide capital growth and may not even fully protect you from inflation.
• Property
  Property funds receive income from rent which is generally expected broadly to keep pace with inflation.

1. Five steps to establish your investment goals 2. Your attitude to risk and reward 3. The major asset classes 4. Which type of manager? 5. Your investment assessment kit 6. Is past performance a guide to the future? 7. Easy access deposits for emergencies 8. Fixed income products 9. A rising income 10. The choice of collective equity funds 11. Pensions and ISAs 12. Tax efficient but may be very risky 13. Selecting your shares 14. Your stockbroker 15. Buying your shares 16. Ethical Investment 17. When to sell 18. How to keep your portfolio on track 19. Do you need an adviser? 20. Conclusion

• First Steps in Shares
• How to Read the Financial Pages