Investing can seem overwhelming, but understanding the different types of investments can help you make informed decisions and build a diverse portfolio that protects your wealth from market ups and downs. There are four main types of investments, also known as asset classes, each with their own benefits and risks:
Cash investments
Cash investments include high-interest savings accounts.
- Cash investments provide stable, regular income through interest payments.
- It is the least risky investment type.
- The value of cash investments can decrease over time due to inflation, meaning your money buys less than it used to.
Fixed interest investments
Fixed interest investments include term deposits, government bonds, and corporate bonds.
- A term deposit lets you earn interest on your savings at a similar or slightly higher rate than a cash account
- Bonds function as loans to governments or companies, paying a regular rate of interest.
- Bonds are considered low risk investments.
- Term deposits lock up your money for the duration of the term, and it can cost investors to break that term and access their funds.
- Certain types of bonds can decrease in value over time, so you could potentially get back less money than you initially paid.
Shares
Shares represent units of ownership in a company and are generally bought and sold on a stock exchange via a broking platform.
- Shares are considered growth investments because their value can rise.
- Investing in shares could help investors to make money if they are sold for a higher price than what was initially paid.
- Investors may receive income from dividends, which are portions of a company's profit paid out to shareholders.
- Share prices can be volatile and can fluctuate due to current affairs and other external factors.
- Investing in shares can incur some fees and charges, such as brokerage fees and foreign currency exchange fees.
- Shares are generally best suited to long-term investors who are comfortable withstanding market ups and downs.
Property
Property investments include residential properties like houses and units, commercial properties like offices and retail premises, and industrial properties like warehouses.
- The value of a property may rise, allowing investors to make money by selling it for more than you paid.
- Getting into and out of the property market can be expensive, with agent fees, stamp duty, capital gains tax and more.
- Property prices are not guaranteed to rise.
You can invest directly in these assets or instead, you may prefer investing via a managed fund that offers a range of different investments and is looked after by a professional fund manager.
