Endowments are regular premium policies which combine investments with life cover and are sometimes used to repay interest-only mortgages. Endowments are offered by life assurance companies, have a fixed term and usually require you to pay a fixed premium on a regular basis.
Investment bonds are designed to produce medium- to long-term capital growth, but can also be used to give you an income. They also include some life cover. There are other types of investment that have ‘bond’ in their name (such as guaranteed bonds, offshore bonds and corporate bonds), but these are very different. You pay a lump sum to a life assurance company and this is invested for you until you cash it in or die.
An investment trust is a company with a set number of shares. It is allowed to borrow money to invest (called gearing). Unlike an open-ended investment fund, an investment trust is closed ended. This means there are a set number of shares available, and this will remain the same no matter how many investors there are. This can have an impact on the price of the shares and the level of risk of the investment trust. Open-ended investment funds create and cancel units depending on the number of investors.
Unit trusts are a collective investment that allows you to participate in a wider range of investments than can normally be achieved on your own with smaller sums of money. Pooling your money with others also reduces the risk.
Open-Ended Investment Companies (OEICs) are stock market-quoted collective investment schemes. Like investment trusts and unit trusts they invest in a variety of assets to generate a return for investors. They share certain similarities with both investment trusts and unit trusts but there are also key differences.
Open-ended investment funds are often called collective investment schemes and are run by fund management companies. There are many different types of fund. These include:
A pooled (or collective) investment is where many people put their money into a fund, which is then invested in one or more asset classes by a fund manager.
If you are an income-seeking saver in search of good returns from your money in this low interest rate environment and depressed equity markets, we can provide you with the professional advice you need to enable you to consider all the options available. In addition, we can help you determine what levels of income you may need and work with you to review this as your requirements change. Another major consideration is diversification and your attitude towards risk for return and availability. This will determine which asset class you are comfortable investing in.
You should consider whether you are primarily investing for growth, income or for both.
When deciding whether to invest, it is important that any investment vehicle matches your feelings and preferences in relation to investment risk and return. Hence your asset allocation needs to be commensurate with your attitude to risk. Another key question to ask yourself is: “How comfortable would I be facing a short term loss in order to have the opportunity to make long term gains?” If your answer is that you are not prepared to take any risk whatsoever, then investing in the stock market is not for you.