Purchasing shares is buying a stake in a company for example the hub agency. The shares are usually traded on the stock exchange throughout the day and the prices can go down and up.
Pros: Capital gains
If you decide stocks are your investment option, then make sure you choose shares that will increase with value over time. In general, shares have provided better returns compared to cash. Keep in mind that nothing is guaranteed.
Cons: Capital losses
If you have invested in a company that is not growing in value, then expect its value to go down. This can lead to a loss on your investment.
Funds
This is a collective investment where your money is going to be spread over different markets, which is different from shares that buy a stake in just a single company. A professional Fund Manager manages the funds and decides where to put the holdings. Funds are sold and bought in units that can reduce or increase in price.
Pros: Diversification
The holdings are spread over different sectors and stocks which reduces the risk. When one holding is not performing well, you don’t have to stress because there is a good chance that another holding is going to perform better. This reduces potential losses to your portfolio.
Cons: Liquidity
The fund manager is forced to sell holdings when there is an investor withdrawing the fund. If it is tied in an asset like property, it can delay things because it takes time to sell.
Exchange Traded Funds (EFTs)
They trade on the stock exchange just like shares. Shares usually focus on just one company, but EFT is different. This investment product focuses on a commodity, index, currency, sector, and investing in a wide range of assets. The goal is to track the performance closely.
Pros: Lower fees
Cost-effectiveness is the main benefit of EFTs. They have lower operating costs which is why they offer lower fees than managed funds.
Cons: Performance
EFTs involve tracking a market, which is different from funds that try to outperform the market. This is going to have a big impact on the performance.
Investment Trusts
This is a company raising money by selling shares to investors which pools the money and uses it in purchasing and selling a range of investments. They can vary with different aims and mixes of assets and shares. Keep an eye on the Henderson EuroTrust fund update.
Pros: Liquidity
When an investor wants to exit the fund, the investment trust doesn’t have to sell assets. It means you can sell your holdings easily through the stock market. The price can go down when more units are being sold compared to what is being bought.
Cons: Potential Price Volatility
The demand for the share is going to influence the price of an investment trust. If investors start to feel like the investment trust is not managed the way they expected, the price can be impacted when they choose to sell instead of buying the investment trust.
Bonds and gilts
These are ways for governments or companies to raise money which involve borrowing from investors. When investing in bonds or gilts, you lend the government or company money which is going to give you a return. There is a fixed rate of interest.
Pros: Stability
They come with lower risks compared to stocks and provide a stable return on your investment over time. There is less risk when investing in bonds and gilts.
Cons: Growth Potential
The con of bonds and gilt is you are not going to get higher long-term returns when you compare it with other investment options such as stocks. Bonds and gilts can be negatively affected by economic uncertainties, changes to interest rates, and currency fluctuations. This leaves you with lower returns.