The most popular types of investments are investment funds where your money is pooled with other investors and spread across a variety of different investments. This is called ‘diversification’ and helps to spread risk.
You can invest directly in investments, like shares, but a more popular way to invest in them is indirectly through an investment fund.
There are many different ways to access investment funds, for example through products such as an ISA or your workplace pension.
The table below briefly describes the most popular ways to invest your money.
You can read more about each by following the links.
Also, refer to the note below the table on how the level of fees charged might impact any potential return you receive.
|Direct investments||How it works|
|Shares||Shares offer you a way of owning a direct stake in a company – also known as equities. Their value rises and falls in line with a number of factors which might include the company’s performance or outlook, investor sentiment, and general market conditions.|
|Investment funds (indirect)||How it works|
|Unit trusts and open-ended investment companies (OEICs)||Funds managed by a professional investment manager. There are lots of different strategies and risk levels to choose from and they can invest in one or more different asset classes.|
|Investment trusts||Investment trusts are companies quoted on the stock exchange whose business is managing an investment fund, investing in shares and/or other types of investment. You invest in the fund by buying and selling shares in the investment trust either directly or through the products listed in the next table. Once again, there are lots of different strategies and risk levels to choose from.|
|Insurance company funds||Investment funds run by life insurance companies. When you invest through an insurance or pension product (see table below), you often choose how your money is invested. The choice might be from the insurance company’s own funds or into investment funds equivalent to those run by other managers.|
|Tracker funds||Some investment funds adopt a ‘tracker’ strategy. The value of the fund increases or decreases in line with a stock-market index (a measure of how well the stock market is doing). Tracker funds often have lower charges than other types of fund.|
|REITs||These are a special type of investment trust that invests in property. Similar OEICs are called property authorised investment funds (PAIFs).|
|Investment products (indirect)||How it works|
|Stocks and Shares ISAs||A tax-free way of investing in shares or investment funds, up to an annual limit. Many unit trusts and OEICs come pre-packaged as ISAs. Alternatively, you can choose for yourself which investments and funds to put in your ISA.|
|Workplace pension||A way of investing for the future, with a contribution from your employer and tax relief from the government. Your money is invested in pooled funds.|
|Personal pension||A way of investing for the future, with tax relief from the government. You can use it instead of or as well as a workplace pension. Your money is invested in pooled funds.|
|Investment bonds||A life insurance contract that is also an investment vehicle. You invest for a set term or until you die.|
|Endowment policies||A life insurance policy that is also an investment vehicle. It aims to give you a lump sum at the end of a fixed term. Often you choose which investment funds to have in your policy.|
|Whole-of-life policies||A way of investing a regular amount or a lump sum as life insurance. It pays out on death, and is often used for estate planning. Often you choose which investment funds to have in your policy.|
How much money will you get back?
There’s no guarantee of how your investment will perform. In the case of company shares, it depends on the company’s performance and the economic outlook.
With funds, the chance of losing your money or making a big profit depends on the mix of different investments in the fund.
A way to spread your risks is to choose a range of different ‘Asset classes’.
For example, choosing a fund that invests in a mix of:
- Bonds and property, or
- Investing in several funds
each investing in a different one of these asset classes.
A note on fees
Fees and charges can reduce your investment earnings. When you invest directly, you usually have to pay dealing charges.
Fees vary by fund, product and provider and won’t always be easy to spot.
Changes to the Key Investor Information Document (KIID) saw the Ongoing Charges Figure (OCF) replace the Total Expense Ratio (TER).
The aim was to allow investors to directly compare costs.
In general the OCF is the same as the TER, but makes it clearer to investors that it covers charges that are applied on an ongoing basis and not just the total costs.
Once you know which type of investment, fund or product might suit you, you’re ready to think about investing.
Read our guide below to find out more.
This article is provided by the Money Advice Service.
Some important information about Rest Less Money
We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.
When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.
Key things to remember when using Rest Less Money:
We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.
No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.
Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.
A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested.