Investment types explained

Think of it like a savings account. You leave (or deposit) your money with a financial institution and it earns interest. It's low-risk, but if interest rates are very low, returns will be low too. And if they are lower than the plan charge then returns could be negative.

Effectively, you lend money to a company for a set time at a set interest rate. The returns are predictable, with more chance of them growing than deposits. The main risk is that the company goes bankrupt without paying back the loan. Even so, bonds tend to be less volatile than shares.

Like corporate bonds, but you're lending to the government. People see gilts as 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 better than with deposits.

There are two main types of property funds.

Here, you're investing in a range of properties, like shopping centres, offices or factories. You might not be able to cash in your investment when you want to if the property doesn't sell quickly. And the true value only becomes clear once a buyer agrees a price.

Here, you're investing in property companies. Like shares, the price of these funds can go up or down suddenly. Compared to direct property funds, you're more likely to be able to cash in your investment when you want to.

Companies sell shares to raise money, and pay you a share of their profits as 'dividend'. Investors buy and sell shares on stock markets. The price goes up or down based on how well the company is doing, or what its prospects are.

Investors tend to think shares give better returns in the long run, though they're too volatile for short-term investing. It's also worth bearing in mind some overseas stock markets are more volatile than UK shares, and currency exchange rates can affect them. 

Some funds invest in a mixture of things, like shares, property or cash. The aim is that if one doesn't perform so well then the damage won't be as bad because you've spread your risk.

Some funds invest in other things, which might suit you depending on the sort of investor you are and what you want to achieve. They include foreign exchange or commodities like grain, gold or oil. We'd recommend talking to an adviser if you're interested in these.