When you invest, your money is used to buy assets such as company shares, bonds or property. These assets have the potential to increase in value over time, helping your investment grow.
This information is for general guidance only and does not constitute personal financial advice. Current legislation and your personal circumstances may change.
Why do people invest?
Everyone has different reasons for investing.
You may want to:
Build up your retirement savings
Help reduce the impact inflation may have on the spending power of your money over time
Save for future goals and milestones
Support your longer-term financial plans
Give your money the opportunity to grow over the long term
How investing works
When you invest, your money is used to buy investments rather than being held solely as cash.
The value of those investments will change over time. Sometimes they may rise in value and sometimes they may fall. Investors generally invest with the expectation that the value may increase over the longer term.
While market movements can affect investment values in the short term, many investors focus on the potential for growth over a longer period.
Time can make a difference
One of the most important factors in investing is time.
Markets rise and fall over time. Investing over a longer period may give your investments more opportunity to recover from short-term market fluctuations and potentially benefit from long-term growth.
Understanding different types of investments
The types of investments available to you will depend on your product. Not all products provide access to every investment option described below.
Most investment portfolios include a mix of different asset types.
Shares
Shares are investments in companies. Funds that invest in shares typically hold shares in a range of companies, giving you exposure to their performance.
If those companies perform well and become more valuable, the value of the fund's investments may increase. Some companies also share part of their profits with shareholders through dividend payments.
Shares have historically provided greater long-term growth potential than some other asset types, although their value can experience significant fluctuations.
Bonds
Bonds are a way of lending money to governments or companies.
In return, the organisation borrowing the money normally pays interest and repays the original amount at a future date.
Bonds have traditionally been used to help provide diversification and may help reduce overall portfolio risk , although their value can still fall.
Property
Property investments may include offices, shops, warehouses or residential developments.
Property can provide opportunities for both long-term growth and income, although values can go down as well as up.
Property investments can be less easy to buy and sell than some other types of investment. This means that, in certain market conditions, there may be delays if you want to move money out of a property fund.
Cash
Cash and cash-like investments generally experience smaller fluctuations in value than shares, property and many bond investments.
However, over the long term, returns from cash investments may be lower than those from some other asset types, and they may not always keep pace with inflation.
Investment funds often hold a mixture of different asset types to help spread risk and support a range of investment objectives.
The types of investments available to you will depend on your product. Not all products provide access to every investment option described above.
Why diversification matters
A common investment principle is diversification.
This means spreading your money across different asset types rather than relying on a single asset type.
Different investments may perform differently under the same market conditions. Diversification aims to reduce reliance on any single investment or asset type.
Diversification cannot remove risk, but it can help reduce the impact of market movements on an investment portfolio.
Understanding risk
All investments involve risk.
Risk is the possibility that the value of an investment could fall, meaning you may get back less than you invested.
Different investments involve different levels of risk. Investments with the potential for higher long-term returns may also experience greater fluctuations in value.
The appropriate level of risk will depend on factors such as your financial goals investment timeframe and personal circumstances.
Whether investing is right for you will depend on your personal circumstances , financial goals and attitude to risk.
The power of long-term investing
The value of investments can go up and down over time.
Many investors focus on their long-term objectives rather than daily market movements.
Remaining invested during periods of market volatility may help investors participate in future market recoveries should they occur.
For this reason, investing is often viewed as a long-term journey rather than a short-term decision.
Growth can build on growth
When your investment makes money and you leave those returns invested, they can also earn returns in the future. This is known as compound growth.
Over time, you may earn growth on both the money you invest and the growth already added to your investment.
The longer your money stays invested, the greater the potential effect of compound growth, although investment growth is not guaranteed.
The longer money remains invested, the greater the potential effect of compound growth, although investment returns are not guaranteed.
Things to remember
Investing is typically designed for the medium to long term.
The value of investments can fall as well as rise, so you could get back less than you originally invested.
Different investments carry different levels of risk.
Diversification can help spread risk.
Time can play an important role in investment growth.
Important information
The value of investments and any income from them can fall as well as rise and is not guaranteed.
You may get back less than the amount invested.
Past performance is not a reliable indicator of future results.
Investment decisions should be considered in the context of your own objectives, financial circumstances and attitude to risk.