Volatility is less frightening if you take a longer-term view
Although past performance is no indicator of future performance, market corrections can be healthy and result in even stronger growth in the future. This is why holding a diversified portfolio for the long term makes good investing sense. It’s time invested in the market, and not the timing of the market, which dictates long-term returns.
If you feel you do not have the time, knowledge or inclination to manage your own portfolio of investments, you can delegate responsibility for managing your money to a professional fund manager. Funds are collective investments, where your and other investors’ money is pooled together and spread across a wide range of underlying investments, helping you spread your overall risk.
Collective investment schemes are a way of combining sums of money from many people into a large fund spread across many investments and managed by a professional fund manager. Your money is invested on a pooled basis by an investment manager in return for a fee.
Market index following the overall performance of a selection of investments
Tracker funds and exchange-traded funds (ETFs) are investments that aim to mirror the performance of a market index. A market index follows the overall performance of a selection of investments. The FTSE 100 is an example of a market index – it includes the 100 companies with the largest value on the London Stock Exchange.
Most collective investment schemes are actively managed. The fund manager is paid to research the market, so they can buy the assets that they think might give a good profit. Depending on the fund’s objectives, the fund manager will aim to give you either better-than-average growth for your investment (beat the market) or to get steadier returns than would be achieved simply by tracking the markets.
Allocating investor’s money into different sectors of the market
Investing in with-profits funds means investing in a combination of shares, bonds, property and money market investments. Growth can come in the form of regular and final bonuses from the profits the fund might make.
An investment trust is a public company that raises money by selling shares to investors, and then pools that money to buy and sell a wide range of shares and assets. Different investment trusts will have different aims and different mixes of investments.
Minimise the amount of tax you pay on your hard-earned money
From July 2014, Individual Savings Accounts (ISAs) can now be used to hold stocks and shares or cash, or any combination of these, up to the current annual limit. An ISA is a ‘wrapper’ that can be used to help save you tax.
Investing a lump sum in a variety of available funds
Investment bonds are life insurance policies where you invest a lump sum in a variety of available funds. Some investment bonds run for a fixed term, while others have no set investment term. When you cash investment bonds in, how much you get back depends on how well – or how badly – the investment has done.
