When you invest, you will put your money into any one or more of what are known as asset classes. These could be shares (known as equities), corporate or government bonds (debt issued by a company or a country), property or commodities. These asset classes offer potentially higher returns than cash but your money will be at varying degrees of risk and this is the essential trade-off that investing demands.
Equities: an equity is a share in a company and a shareholder therefore owns part of a company. Shares can be bought and sold on the stock exchange and may fluctuate in value every day the market is open.
Bonds: when you buy a bond, you are essentially lending money to a government or a company. Like with any loan, the lender expects to receive interest and get their money back at the end of a set term (this date is known as the bond’s maturity). Broadly speaking, the safer the borrower, the lower the interest available on the loan.
Property: due to the large prices involved, most investors will access the commercial property market through a fund, in which a professional manager has the scope to construct a portfolio of commercial and residential assets.
Commodities: few investors are willing or able to own physical commodities (for example oil, metals or “soft” agricultural commodities such as wheat) so access to this asset class tends to be via a fund or instruments called derivatives.