Risk and Potential Reward
Investing can offer higher returns on your money than saving.
However the risk is much greater, investors may not get their origianl investment back or make any money. In general, the higher the potential return, the higher the risk.
People invest money for the medium to long term.
Investors can make through capital growth - this is, the value of their investment grows, so they can sell it at a higher price than they paid for it.
They can also make money if the investment pays a regular amount of money that they investor uses as income.
Sme investments offer both capital growth and income.
Individual shares in the ownership of the comapy. Shares are bought and sold through stock markets.the investor's aim is buy at low price and sell at a high one. The difference in value is the return that the investor makes. If the share value decreases, the investor may make a loss.
Shares can pay dividends - this is, a share of the profits - to shareholders.
Dividends are usually paid twice a year, if a company does not make a profit it will not pay any dividends.
Buying shares in an individual company is high risk!
Unit Trusts and other Collective Investments
These are a way of reducing the risk of investing
A large number of investors put their money in to a pool.This large sum of money is used to invest in a wide range of shares and other investments.This is known as 'risk-spreading diversification'. Each investor owns part of the collective investmen, such as a number of units in the unit trust.
Investors may be paid dividends, usally twice a year.
In the past, property, such as houses, has increased in value. The aim is to buy
at a low price and sell at a higher price, making a profit. However, this can be a
risky investment in the short term because property prices can fall, as they have
These are a way in which companies, governments and other organisations
raise money. The investor lends the organisation money for a fixed length of
time and at a fixed interest rate. The interest is often paid twice a year
throughout the life of the bond.
Investors who own bonds do not own a part in the company
Gilts (gilt-edged securities)
These are a type of bond issued by the government. These investments are
This is a range of government-backed investments that are very low risk.
Potential returns are lower than for other types of investment.
Some NS&I products offer an income, such as income bonds.
Some specialist investments are very high risk, for example derivatives.