Financial Brokers are very aware of the complexity of the world of investments, and that this can prove challenging to consumers as they try to make sense of a bewildering amount of terminology. One of the most important roles of a Financial Broker is as an educator, helping people to understand the jargon that is used in relation to investments. After all if individuals don’t understand the lingo, how can they be expected to understand the recommendations that are made in relation to their money?
So we’ve included below the main investment options that are considered by consumers every day with an explanation for each. Of course your Financial Broker will be delighted to give you as much further information as you require, ensuring your full understanding of all of the options!
First of all, your Financial Broker will usually recommend a diversified portfolio. This is an investment approach that spreads the money invested across a range of different investments. Some of your money might be invested in shares, some in property and maybe some in cash. The idea behind this is that if one investment gets badly hit (for example – a property crash), only part of your investment is affected. Having a diversified portfolio is avoiding having all of your eggs in one basket and reduces your risk.
In relation to the actual investment options, the main ones that you will hear about are;
Equity (or Share) funds
The money in these funds is invested in a range of individual company shares. Some are very diversified, investing in a range of companies across the globe. Other equity funds may be more targeted, investing only in shares in a specific country or sometimes in a specific sector of the economy.
What are bonds? They are money raised by governments and companies in the form of loans. You write a cheque to the company or government loaning them money, which they then promise to repay you after a certain amount of time. They also agree to pay you a set rate of interest during the loan period. Bond funds are simply a portfolio of bond investments.
In a cash fund, the investment money is placed on deposit with a bank / number of banks across a range of different deposit maturity dates.
In a property fund, the fund manager buys a number of properties, usually a range of offices, retail premises and industrial buildings. The investment return is based on the rent received and on the change in the value of the properties over time.
Absolute return funds
These are slightly more complex investments that use investment options that can make money for investors, even when markets (for example stock markets) are falling.
These are just some of the investment options available. Which ones are right for you? This is where your Financial Broker earns his/her corn, finding the right investments to suit your specific circumstances and appetite for risk.