Investment

An investment is a conscious choice to place your money in to a vehicle (e.g. stocks and shares, bonds, property) that provides the possibility of generating returns or interest over a period of time.

Each investment should offer a varying balance between risk and potential returns. Lower risk investments generally incur lower returns but offer more security for your money, whilst higher risk investment can offer higher returns, however, there are some exceptions.

The investors who have made the biggest returns over the long term have been those willing to back the market during turbulent times.

Bonds are not seen as an exciting part of the investment world but as they are more stable than the stock market, they are a good option for risk averse investors or those whose portfolios are already high risk. The drawback is that greater profits can be achieved elsewhere.

If you pay a higher rate of tax, you will never receive the highest rate available, for example Principality building society last week launched a bond paying 5.11% on £1,000 or more until October 2012, but as a Higher-rate taxpayer you would receive 3.1% after tax, and because deflation is at 1.6% which increases your purchasing power, you would in effect receive a rate of 4.67%.

Stock market investors are rattled by the fact that shares have lost money over the last decade. Although recently confidence is growing, stocks are still deemed to be high risk.

If your money is invested in stocks and shares which increase in value, you may make impressive returns on your investment. If, on the other hand, the stocks and shares fall significantly in value, you could suffer serious losses. There is no room for complacency in investing in shares.