Personal Money Management 101

Investing Money - Types of Investment

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  • Cash
    • refers to bills, notes & coins
    • also cheque and (accessible) deposit/savings accounts
    • advisable to keep at least 2 months earnings in cash -
      in case of "emergency"
    • More interest for restricted access, eg notice accounts;
      also for instant access accounts operated by Internet,
      phone, post or card (ATM).
  • Fixed interest bonds
    • issued by governments and corporations
    • in UK government issued bonds known as gilts
    • returns consist of interest + capital growth (depreciation)
      from time of purchase to redemption
    • level of return reflects safety of bond, ie likelihood of repayment (gilts are extremely safe hence lower return than corporate bonds)
    • may be traded in markets any time before redemption
    • if held to redemption, returns fully predictable (provided borrower does not default)
    • market price fluctuates according to prevalent interest rates & sentiment
    • bond prices rise as interest rates fall
    • bond prices fall as interest rates rise
    • bond prices approach redemption value as redemption date approaches.
  • Stocks and Shares
  • Real Estate / Property / Land
  • Index Linked
    • returns match inflation, eg index-linked gilts
      good store of value
  • Premium Bonds (UK)
    • bonds are entered into a monthly draw and prizes awarded from £50 to £1,000,000
    • prize fund represents interest payable on all bonds - essentially an interest lottery
    • worth a punt esp. when inflation and interest rates are low
  • Derivatives
  • Match investment type to objectives
    • Avoid "hybrids", eg insurance and mortgages serve useful roles but they are not savings vehicles.

For details & comparisons of UK finance and investment products, see:

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