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Collectives

Many people prefer collective investments such as unit trusts and investment trusts.  In both cases an individual is able to invest in a basket of shares of different companies, that way spreading his or her equity investment risk.  By pooling the investments of many individuals the manager of the investment fund can benefit from reduced trading fees and increased monies to invest thereby reducing an individuals risk and fees compared to an individual buying a single share type of one company.

In the case of unit trusts the investor buys a unit, or a part of a large fund which is it itself invested in a variety of companies.  An investment trust is a company listed on the stock exchange and whose business is investing in other companies.  In both cases the investor is trusting his or her money to the judgement and skill of the fund manager.

Collectives can also invest in Fixed Interest instruments which offer a reduced level of risk in general, dependent upon the fund makeup.  These include UK Government stock, also known as Gilt Edged Stock or “gilts” for short.  Corporate Bonds are also fixed interest instruments and both represent direct borrowing on the part of the issuer of the bonds.  They are referred to as “Fixed Interest” because their cost of borrowing is fixed while the price of the bonds themselves may float up or down depending on supply and demand.

Traditionally fixed interest investments have been regarded as a safe option.  But it is important to remember that not only do they fluctuate in price but that the issuer may not pay the interest ( coupon ) on the bonds or the principal when the bonds mature.

Insurance companies also offer Life Funds which again offer a collective investment for individuals to invest in which offer a variety of fund choices covering all market areas from fixed interest to small companies.  When choosing funds it is vital to ensure an individuals risk and reward profile is established to ensure that the best suited fund or funds are chosen.

Armed with these explanations of what types of financial instruments there are to choose from, investors can ask for our advice as to which ones we would recommend based on best suiting your risk and reward profile.