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.
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