Investments Defined

What is an investment?

An investment is when an investor commits an amount of capital to purchase an asset or assets. For example, you could purchase a house which would deem to be an investment, or you could purchase stocks and shares.

What is risk?

Risk is the potential loss or profit of the capital investment. This is where if you were to say purchase a share for £2 and it was deformed to £1.50 pounds you have lost 50 pence. But you risked your money because you were under the impression or you had researched the company thinking the share price would rise.

What is a fund?

A fund is when various investors pool their resources with the object of grouping together and investing in a range of products available at a particular time. For instance, a managed fund from Unit Trust, will be a fund where there a number of people investing in that fund and the Unit Trust is invested in many many shares.

What is equity investment?

Equity investment is the purchase of ordinary shares in a company quoted on the stock exchange.

Do equity investments provide a secure income?

Equity investments do not supply a secure income. You must remember that the income is derived from the dividend declared by the company. Now the company can at any time cut the dividend. When considering an investment, you should always contact an advisor, for those dividends and income are not guaranteed.

Is my capital secure when investing in equities?

When investing in equities your capital is not secure - there's always a risk element. For example you could invest five hundred pounds in a share on very good information, good research, only to find that the company has a major fire, loses production, consequently profitability falls and your share price falls and you find you're confronted with a loss. When in doubt contact an advisor.

Will I receive higher returns when investing in equities?

Equities do provide the potential for higher returns over the medium to longer term. But you should always remember that there can be short term violent moves up and down.

Why should I invest money in equities?

Equities should form part of a well balanced portfolio. History has proved that over a number of years, equities have outperformed any other form of investment. Equities are a high risk area, so always take professional advice before including them in a portfolio.