Investment Basics

To make the right investment choice for you, it's important that you understand some investment basics.

There are five main classes of investment assets: -

• Cash
• Bonds (Fixed Interest)
• Property
• Shares (Equities)
• Other (Alternatives)

Each asset class has a different level of risk and expected return. Generally, as the potential for a high return increases, the risk of loss also becomes greater.

Click here to find out more about asset classes

Growth vs Income Assets
The five types of assets described above can be grouped into two main categories, growth and income:-

• Growth Assets include property, shares and alternatives. These assets generally produce higher returns over the long term (five or more years). They are also more likely to fluctuate (change) in value over the short term (say one year).
• Income Assets include cash and fixed interest investments. Usually, these investments provide a lower return over the long term than growth assets and are less likely to fluctuate (change) in value in the short term. Income assets are known as defensive assets due to their lower volatility.

What's the difference?
Investing in growth assets, especially shares, is generally expected to make more money over the long term, say five years or more, than investing in income assets. Attached to higher returns is a higher level of risk. Growth assets tend to fluctuate up and down in value. There is also the risk that growth assets may have a negative return in any one year. Income assets tend to produce a steadier result, but with lower returns, over the long run.