So what do they mean? Below is a brief overview of what these asset classes do. Some asset classes are better for income while others come into their own when you are looking for capital growth. Some would be seen as high risk while others would be low.
Think of it as a savings account. Like the one, you may have with a Bank or Building society. You deposit your money with them and in return, you are paid interest. It is seen as low-risk. If interest rates are very low, returns will be low too.
You lend money to a company for an agreed period of time. In return, you are paid a set interest rate. The main risk is if the company goes bankrupt without paying back the loan. Historically, bonds tend to be less volatile than shares and the returns are fairly predictable.
These are like corporate bonds, but instead of lending money to a company, you are lending to the government. This is generally low-risk because the government is unlikely to go bankrupt. Like corporate bonds, gilts are less volatile than shares and the chances of returns growing are generally better than with deposits.
There are two main types of property funds.
With direct property funds, you are investing in a range of properties. These could be shopping centres, factories or offices. They may not be very liquid as you might not be able to cash in your investment when you want to. The property needs to sell quickly. An additional downside is that the true value of the investment only becomes clear once a buyer agrees on a price.
With these, you are investing in property companies. These act like shares. The price of these funds can go up or down suddenly. The advantage compared to direct property funds is that you are more likely to be able to cash in your investment when you want to.
These might include foreign exchange or commodities like grain, gold or oil. These are generally seen as high-risk investments.
Finally, many of our solutions are a mixture of these asset classes. Blending shares, cash and property. The aim is that if one asset class is not performing the others do well. That old saying of not “putting your eggs all in the same basket”. A case of spreading your risk.
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