Topic: Investment

Building block of many investor portfolios

Investing in bonds, pooling your money with thousands of other small investors

Bonds are debt issued by either a government or a company and are an essential building block of many investors’ portfolios. When you buy a bond, you are effectively extending a loan to the issuer of the bond.

Open-ended funds

Professionally managed collective investment funds

Unit trusts and open-ended investment companies (OEICs) are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets and other investments. An open-ended fund could be visualised as a big pool of money – the money belongs to thousands of small investors.

A higher return on your investment

Invest as much of your annual ISA allowance as you like in either a Stocks & Shares ISA or a Cash ISA, or any mixture of the two

Some people never look beyond Cash Individual Savings Accounts (ISAs), but by using Stocks & Shares ISAs too, you could get a higher return on your investment. Stocks & Shares ISAs can contain shares, bonds and investment funds. There are no restrictions about where in the world you can invest: it does not have to be all in the UK.

Reducing investment risk

Choosing a broad spread of instruments in which to invest

If you require your money to provide the potential for capital growth or income, or a combination of both, and provided you are willing to accept an element of risk, pooled investments allow you to invest in a large, professionally managed portfolio of assets with many other investors. As a result of this, the risk is reduced due to the wider spread of investments in the portfolio.

Why are you building an investment portfolio?

Every investor is unique, but everyone faces the same trade-off between risk and reward

The best place to start when you are looking to build a diverse investment portfolio is to ask yourself why you’re building a portfolio. For most of us, the central task is to build a pot of money that involves you, the investor, taking some risk over the long term, at the end of which you will have ideally built up a sizeable portfolio of diversified assets that will last you through to your retirement years.