Bonds

Bonds tend to fluctuate in value less than shares and should repay your original investment at the end of a fixed term. However, the scope for your money to grow is usually limited in comparison to the growth achieved historically by shares, and there is the possibility that the issuer could default on the loan.

Fluctuations in interest rates can also affect the value of a bond – generally when interest rates rise, bond prices fall and vice versa. Although bonds are usually considered medium risk, this depends hugely on who is issuing them. Bonds issued by the UK Government are called Gilts and are very safe, whilst the risk involved in corporate bonds is dependent on the business issuing them. The level of income a bond pays reflects the risk you are taking – a company with a higher risk of default will have to reward investors with a higher yield.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Property

The family home is the most significant investment many of us will ever make, and one that given time is likely to net a tidy profit. Returns from property investments tend not to be closely correlated with those of shares or bonds. This makes it useful from a diversification perspective introducing another source of capital growth potential and income into your investment portfolio. Although property tends to be less volatile than equities and bonds, its value can fall as well as rise. It is also less liquid than other assets, meaning that it takes longer to invest into, and also to access your money when you need it.