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The UK’s only fund platform comparison site for private investors. Please note you are leaving Candid Money, a financial guidance site not regulated by the Financial Conduct Authority, to go to Candid Financial Advice, a financial adviser that is authorised and regulated by the Financial Conduct Authority. However, unlike saving, investing normally means taking some risk, i. In general, the more money you stand to make from an investment the more you could also lose. If you can lose money then why bother? Well, more often than not, if you hold some sensible investments for long enough they’ll make you more money overall than you’d get in a savings account. The key is how long you’ll have to hold them for and how much of a roller coaster ride they’ll give you along the way.
The degree to which an investment fluctuates in value over time is called ‘volatility’, while the extent to which the value of two different investments tends to move in the same direction at the time is called ‘correlation’. Both volatility and correlation are key to many arguments on how to successfully invest. Volatility is a statistical measure of the rate at which an investment moves up and down over time. If an investment changes rapidly in value over a short period of time it has high volatility, whereas an investment that hardly ever changes in price has low volatility. Looking at volatility is a useful way of guesstimating how risky a particular investment might be.
Volatility is calculated by working out the ‘annualised standard deviation of the daily change in value’. Don’t worry about the jargon, as a rule of thumb you can calculate this figure by taking the typical daily change in value of an investment and multiplying by 16. Well, apart from helping us compare the possible risks of various investments, it can also help estimate your largest annual gain or loss in the normal course of events. Of course, this is all guesswork and shouldn’t be taken as an accurate prediction of what will happen in future. When it’s hot we tend to buy more ice cream. Another way of saying this using some statistical jargon is ‘ice cream sales are positively correlated to the weather temperature’.
Conversely, when it’s hot we tend to buy fewer winter coats, i. If they move in exact opposite they have perfect negative correlation, value -1. If they move totally independently of each other they are uncorrelated, value 0. Investment correlation is all about trying to work out the extent that various investments are related. For example, you wouldn’t want to buy two investments with perfect positive correlation, because if one falls in value the other will too by the same amount – you might as well buy just one of the two.
Likewise, if they were perfectly negatively correlated your investment return would always be zero. Whenever one increases in the value the other falls by the same amount. Investment types There’s a massive range of investments you could choose to stick your cash into. You can read brief descriptions here, but visit the main pages for each asset to get a much better understanding.
These are IOUs from the Government. Investment grade Very similar to gilts, but the IOUs are issued by large, financially stable companies. However, because they’re not viewed as being as safe as gilts, they must pay higher rates of interest to attract buyers. High Yield Corporate Bonds Unlike investment grade bonds, these are issued by companies whose credit worthiness is less certain. As a result they have to pay higher rates of interest to attract buyers. High yield corporate bonds also tend to be affected by stock market movements more than investment grade.
Residential property For many of us residential property is our biggest investment, i. You might not treat it as an investment, but if your home rises in value over time you could sell at a profit in future. Some investors do buy residential property as an investment, renting it out to get an income, this is known as ‘buy to let’. Commercial property Commercial property means properties such as retail parks, offices and factories. Unlike residential property, companies who rent commercial property normally agree to very long rental periods, 10 – 25 years is common.
This should provide a stable long term income, although the prospect for rising property prices is lower than residential. Developed stock markets Refers to buying shares in companies based in developed economies such as the UK, US and Europe. Your investment buys shares in a company, so your investment returns depend on that company’s fortunes. The technology company could make a fortune or might just fall by the wayside. If things go well your investment could soar, but temporary or permanent setbacks could see the value of your shares plummet. A commodity is something that is standardised worldwide and has a universal global price. There are ‘hard’ commodities such as gold, metals, oil and gas as well as ‘soft’ commodities such as rice, meat and sugar.