Don’t put all your investment eggs in the same basket

Diversifying your investments just means putting your money into a spread of investments so that you spread your risk. These different kinds of investments are referred to as asset classes. 

So, here are some of the most common types of investment asset classes to help you decide which are the most suitable for you. This is an option, not a recommendation - Salary Finance does not offer regulated financial advice. If you want to learn more about investment and the best options for you, please seek independent financial advice on investments.

Cash

Cash investments usually mean putting your savings into a savings or current account, savings or premium bonds, cash ISAs etc.  These types of investments tend to pay low rates of interest but your capital is secure, as it is protected by the Financial Compensation Scheme up to £85,000. Since interest rates are currently low for savings in the UK, investments like this are vulnerable to inflation. If inflation (a general increase in the cost of living) is higher than the interest you're earning on your cash investments - then you are essentially losing money. But, if you need short-term or easy access to your money, cash is a good asset class.

Fixed interest securities

These are also called 'bonds', and are issued by governments and companies that want to borrow money. When you buy a bond then you're essentially providing a loan to a government or company for a fixed period of time, after which they will pay you back. While you own the bond you receive annual interest, but this can also be accumulated if you invest via a fund that invests in bonds for you. These types of investments tend to be lower risk and return than company shares because of the fixed time period and returns. However, the value of your money in a bond fund is again at risk if the rate of inflation is higher than the interest being paid back to you on your bond or general interest rates rise (because bonds are very sensitive to interest rates on cash).

Shares

When you buy a share - 'also known as ‘equity', you hold a small stake in a company. You can buy shares directly or as part of an investment 'fund'. Investment funds are a way of investing alongside lots of other people. Choosing to invest in just one company can be return but also high-risk. When you invest in a fund, the risk is usually lower because your money is spread across thousands of companies, sectors and regions. You can usually choose funds based on what level of risk/return you are comfortable with.

Property

Investing in property via an investment portfolio usually means investing in a fund which owns factories, warehouses, shops and offices. Over the longer term rental income and the value of property tends to follow the overall economy and offers a risk and reward somewhere between bonds and property.  But sometimes, like right now, changes to the economy can lead to falls in rents and capital values, which makes property investing risky. And property is expensive to buy and own. There's rarely a 'quick win' when you invest in commercial property through your portfolio because the money you invest is tied up in the property itself - as long as you own or have a stake in it you won't be able to access your money if you need it.

What next?

You might already be an investor and have put some money into some of the assets we've listed above, but is your portfolio 'diverse'? If the answer is no, then you may want to think about diversifying. 

If all your savings are in one low-interest savings account, you could think about spreading it across ISAs or low-risk bonds. If you have a lot of money in savings, it can be worth branching out into longer-term investments like shares or bonds where your money is held to 'maturity' ie. usually a number of years in order to (hopefully) maximise the return. If you’re heavily invested in a single company’s shares – you might want to invest in an investment fund that gives you a better spread of holdings

• Find out more from the Money Advice Service investment guide to risk.
• Read about making an investment plan.
• Use Which? investment portfolio to find out how much you could gain or lose.
• Take personal advice from a regulated financial adviser. You can find an adviser here.