Choosing An Investment Approach
The word investment is very widely used today and, unfortunately, it is often used incorrectly. For example, we talk about an investment plan to buy a new car or pay for a holiday, when what we really mean is a savings plan. So, what do we mean when we talk about investment?
There are many different forms of investment that can be used to create a plan, and which you choose will depend on both the timeframe for your plan, and your feelings about risk. A good example of this is investing in the stock market.
Stock markets can be extremely volatile, and this means that you can make money very quickly, but that you can also lose it very fast. There are many examples of people who have made their fortune by investing in the stock market, but there are just as many examples of individuals who have lost everything they owned.
This said, history shows that the underlying trend is for the stock market to rise over time and so, as long as you stay invested for the long term, there is a good chance that you will make money. Nevertheless, this must be seen as a longer term investment vehicle, and one which carries a fairly high risk.
The risk of investing in the stock market can be reduced by sharing the risk with others, and this can be done by investing in managed funds such as investment trusts and unit trusts. Many insurance products today are also linked to the stock market, and you can invest in a range of unit linked insurance policies. Investment vehicles of this nature are less risky than investing directly in the stock market, but still carry what we might term a medium amount of risk.
At the bottom end of the scale are investment vehicles that carry little or no risk at all. These include such things as government and corporate bonds, money market funds, and a variety of bank and building society investment products. Individual savings accounts (ISAs) will also fall into this very low risk investment category.
For most people building a plan is a matter of matching your own feelings about risk to a portfolio which itself strikes a good balance between high risk, high return investment vehicles and low risk, low return products. Most people today will have a mixed portfolio featuring very largely medium and low risk forms of investment.
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