In this series of blog posts we will be breaking down both the basics and the complexities of investments.
To find out Things to consider when investing visit our previous blog post:
Here is a break down of the different components of the investment industry structure
Where should you invest?
There are four main investment asset classes:
4. Commercial Property
When considering what type of investment asset to invests in you must consider how much risk you are willing to take and how accessible you want your money to be.
What are bonds?
Bonds are loans to governments or loans to companies in return for interest payments over the life of the bond.
· A bonds value can go down if demand falls or a bonds value can rise if demand increases.
· The level of risk attached to bonds depends on the type of bond you invest in. For example, a UK government bond would be considered low risk, which a bond issued by an indebted and politically unstable government may be considered very risky. Generally, bonds are considered less risky than property shares.
What are shares?
Shares are issued by companies and give you a part ownership of that company.
· Shares are brought and sold on the stock market
· If a company is producing a good return in the form of dividend payments and/or positive prospects share are likely to go up
· Shares are the most unpredictable of the main asset types in the short turn, but have the potential to return more than other assets over the long-term.
What about commercial property investment?
Property investments available to the public tend to be in the form of funds that buy all or part of a collection of commercial buildings such as office blocks, and shopping units.
· Property share prices tend to be more predictable and fluctuate less on a day-to-day basis due to property prices slow price movements. However, they can jump down or up when a tenant moves or a new tenant is found.
· Commercial property investments can provide growth through rises in the value of the property and/or through rent paid by tenants of the building
How does geography and business areas influence the risk behind the investment?
Every asset class has a degree of risk. As said before: When deciding on an investment you must measure whether the potential returns are worth the risk attached to the investment.
How risky an investment is can depend on two main areas: the geographic region and the business area.
1. Geographic region
The geographic region of an investment can influence the potential risk due to regional spending habits and cultural trends. A company in an area of high developing economy is likely to be able to more grow rapidly and see its shares rise quicker than an area of low economic development.
2. Business areas
As business areas vary so does the risk and potential return of an investment. For example, oil production is generally regarded as a safe investment due to it’s constantly increasing demand. However, like with any investment, there is no 100% guarantee on return with an investment. For example, if finding found that the oil industry is causing a fatal illness investment demand may be affected.
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