MAKING INVESTMENT DECISIONS

You can invest your money in many ways. The different general groupings of investment choices are called asset classes. An asset class is a type of investment, which shares its characteristics with others in the class – both as regards risk and the way they behave in the investment market.

The three main classes of assets are as follows:

 Equities – by which we mean investment in companies either directly, e.g. buying shares in British Telecom, or through an investment fund, which invests in a number of companies, e.g. a pension managed fund.
 Fixed Income – referring to bonds (essentially loans to a company or the Government – when they are called “gilts”). The company or Government pay an agreed rate of interest on the loan and promise to return the capital at the end of the agreed term.
 Cash – usually money in a high interest savings account or ISA, but could also be actual cash you have in a safe or under your mattress.

In terms of risk, Cash is considered the lowest risk, followed by Fixed Income and then Equities.

Equities can be broken down by:

 Size – large companies or small companies
 Industry – health care, energy, technology, building, etc
 Country – any specific country or geographical area, including global funds

Bonds can be broken down by:

 Safety – a bond issued by the Government is considered safer than one issued by British Telecom, which in turn is considered safer than one issued by a relative small or new company, since they are more likely to run into trouble and have difficulty repaying their debt.
 Term – a short-term bond (i.e. one that will come due in less than 1 year) is not as risky as a longer-term bond (i.e. one due in 20 years time).

Other asset classes would include Property, Foreign Currencies, natural resources, precious metals like gold, collectibles such as art, coins, stamps – or even fine wine.