Investment Guide
The ASMEC has produced the following information to provide a general overview of investing and investments.
Investing is typically thought of as a way to increase the value of money and as a way of trying to protect the value of money against the impact of inflation over time.
All investments carry risks and are generally accepted as higher risk than simply depositing money with a bank.
Investments vary in terms of the degree of risk and also complexity and not all investment products are suitable for everyone.
Common Types of Investments
Equities, Shares or Stocks
Equities, shares or stocks describe direct investments in a single company with the aim that the value of the share will rise over time and/or produce income in the form of a dividend paid by the company you invest in.
Shares are traded on stock markets and the value of shares fluctuate, often even over the course of a day. Buying shares is generally considered one of the higher risk types of investment as it is a direct investment in a single company. Whilst there is the opportunity for the price of the shares to increase over time, producing capital growth, the value of the shares may fall and sale of the shares at that lower price will produce a loss on the original capital invested.
Equally dividends paid by companies are not guaranteed and there may be periods during which the company does not pay any dividend due to the underlying conditions in the business.
You can buy and sell shares through an adviser (broker or stockbroker) or direct through a share dealing account. The process of buying shares can be complex and you should ensure you fully understand your commitments and also research the company which you intend to buy shares in.
Funds, Collective or Pooled Investments
Funds, collective or pooled investments offer an alternative to buying shares directly. A pooled investment allows an investor to participate in buying the shares of many different companies by combining with other investors.
In such pooled investments, the money of all investors is aggregated and invested by a fund or investment manager. This allows diversification across multiple companies or assets, reducing risk compared to direct share investment. However, underlying values may still fluctuate.
If you invest in pooled investments the dealing and administration related to the underlying investments is taken care of for you. However, charges are made by the managers of pooled investments for these services. Whilst they can be lower than the charges of direct investments, due to economies of scale, they will still impact on the level of investment return you may receive from these investments and you should always look into the charging structure of any investments you are offered.
Bonds
Bonds or fixed interest securities are a debt-based investment where the investor loans money to an entity (company or government) in return for a fixed rate of interest (yield). The bond will have a maturity date at which the sum loaned will be returned.
Bonds are generally thought of as lower risk investments compared to shares, though not without risk. At worst, the issuer could default and cause a partial or total loss of the loaned amount.
Structured Products and Complex Investments
Beyond cash deposits, equities, pooled investments and bonds, there are a range of products designed for specific investors or objectives. These may combine different investment types and involve varying levels of risk.
Such products are often complex and may offer potentially higher returns due to the higher risk involved. Always ensure you understand the product and its risks before investing.
Risk
Any investment involves risk and investors should consider their own attitude to such risk before deciding to invest or choosing the type of investments to place their money into.
People approach risk differently — some are comfortable taking risks for higher returns, while others prioritize security. If you are going to invest, consider how you would feel if your investment’s value fell significantly and whether you would wait, reinvest, or withdraw.
You may also want to consider currency risk — fluctuations in exchange rates between your home currency and the currencies of your investments.
Other Considerations
Anyone thinking about investing should consider their decision carefully and keep in mind:
How much can you afford to invest? Investments should generally be made with surplus funds not needed in the short term. Ensure your protection needs, such as life insurance and dependents’ provisions, are covered before investing.
What is your objective? Saving for a goal (like education) may influence your risk tolerance and investment choices differently than investing for income generation.
How long do you wish to invest for? Investments are typically mid to long-term (five years or more). Short-term needs may make investing unsuitable due to potential penalties or losses if funds must be withdrawn early.
What level of risk are you willing to take? Assess your comfort level if the investment’s value drops temporarily. Decide if you prefer capital protection or are open to higher risks for potential growth.
What is your level of knowledge and understanding? Investments can be complex. Understand the key features, charges, and risks. Consider professional financial advice from a trusted and qualified advisor acting in your best interest.
Avoiding Scams
Sadly, some advisors or schemes do not have clients’ best interests at heart. Stay alert for warning signs:
- Unsolicited calls offering “too good to be true” investment opportunities.
- High-pressure sales tactics — never rush into “limited time” offers.
- Unclear or overly complex investments with hidden charges. If it cannot be explained simply, it’s likely unsuitable.
- Requests for payment via email, phone, or directly to an advisor. Always verify credentials before sending money.
