Investing in assets
You can choose to invest in a range of funds, which invest in different types of assets, like equities, bonds, or cash. The performance of different asset classes will naturally vary over time. As each asset class has its own unique characteristics, wider market conditions and world events will affect them differently. You may choose to invest your contributions in any or all of the following asset classes.
The main asset classes
Learn more about the benefits and considerations for each asset class.
Cash investments include bank or building society accounts, bank deposits and cash funds provided by investment management companies.
Bonds are corporate and government loans with you playing the part of the lender, in exchange for receiving interest payments over a set period of time.
Also known as stocks and shares, equities represent part ownership of a company. When you buy a share in a company, you’re actually buying a piece of that company, so the investment return you earn depends on the success or failure of the company itself.
Property funds often invest in commercial property rather than the residential market but you should still consider your house and any buy-to-let properties you own as part of your investment portfolio. Property funds benefit from the ability to invest in large commercial projects like shopping centres and retail parks. Fund managers can commit more capital to these properties and deal with fewer landlords than investing in residential schemes, as a result. Property funds also allow investors to invest smaller amounts than would be necessary to buy a physical asset.
Diversification is essentially the principle of not ‘putting all your eggs in one basket’. In investment terms, this means if you invest all your money into one fund or one type of asset class and it does badly, you could face a big loss. If you spread-out or ‘diversify’ your portfolio across a number of different investments, you’ll be in a better position to withstand any potential losses from a single asset class.
You can further diversify your portfolio by:
- Investing in funds. Because your money is pooled with money from many other investors within a fund, you have more access to more companies or markets than if you were investing directly as an individual.
- Investing in a combination of stock markets within different countries, so that your investment won’t depend on the fortunes of just one market, such as the UK.
- Investing in a mixture of the various types of investment funds, spreading your money across equities, property, bonds and cash, helping to minimise the impact of a single asset class on your portfolio.
Risk and return
Investment risk to you as an investor is simply that you may not achieve your intended financial goals and there is a risk that you may get back less than you invested.
Generally speaking, the greater the return you’re looking for, the greater the risk you usually have to accept. Choosing to take less risk with your investments is likely to see lower returns. Investments can go up or down in value.
The risk-return spectrum
This image shows a spectrum moving from the left where assets with lower risk bring lower growth potential towards the right, where assets carrying higher risk bring the potential of higher growth.
Things to consider
Just how much risk you’re prepared to take is likely to be influenced by a number of factors, including:
- Your investment goals
- The timescale over which you are investing
- Whether you require income from your investment or want to grow your portfolio
- The type of investments and the level of risk that suits you
Find out more about managing risk and different ways to invest.