Types of investments and products
If you're planning to invest, you need to set yourself goals and establish the amount of investment risk you're prepared to take. This is because all investments carry the risk that you could lose money, as their value and any income they produce can go down as well as up.
You also need to work out how you'd like to invest your money.
Diversification is key
Spreading your money across different investment types can provide a mix of risk and reward, so long as you follow the golden rule of leaving your money invested for five years and longer.
You can invest:
- Directly in shares/stocks, bonds, property and cash – these are often referred to as asset types or classes.
- In funds – collective investment products that pool and invest money on behalf of many investors. A fund manager manages overall performance of the fund on your behalf and the fund can be constructed to deliver income, capital growth or a mix of the two.
- In fixed term investments / structured products – these have a fixed term (unlike funds) and generally offer defined rates of return linked to stock market performance and may provide for repayment of your capital at their maturity. They are issued by financial institutions and there is a risk that if those institutions are not able to meet their liabilities, because they become insolvent, investors will receive nothing or less than is due to them.
You should ensure that you only invest what you can afford to lose and have savings to cover any short- to medium-term needs. It is commonly accepted you should look to hold at least three months' income in a savings account that offers immediate access, in case of an emergency.
Investment types in detail
Direct investments: Individuals who choose to invest directly – rather than indirectly through funds – usually do so in one of the following asset classes or types:
- Shares. These refer to money invested directly in a company. You'll also hear them called equities. They're normally higher risk than the other classes but have potentially higher rewards. They're mainly used to provide capital growth but this isn't guaranteed.
- Bonds. Governments and companies can raise extra money by selling ‘Bonds’ to investors. When an investor buys the bond, they essentially agree to lend the government or company money in return for a regular source of income. As a result, bonds tend to form a higher percentage of products or funds designed to provide income rather than capital growth. Like shares their value can fall as well as rise. They're generally seen as less risky than shares, though this is not always the case, but more risky than cash.
- Property offers potential income (from rent) and growth (if you sell the property after its value has risen). As a direct investment, property is not easily converted to cash – it may take time to sell and there are costs involved in the process. There’s also the risk that the value of your property can fall.
- Cash deposits are generally the most secure of the four asset classes but are normally viewed as part of a rainy-day or emergency fund. Cash can lose ‘purchasing’ value over time because of inflation, although unlike investments you can generally get your money back when you need it.
You can put your money directly into any one of the four main asset classes or into a combination of them. Buying company shares as part of a work-based share purchase scheme is an example of how people often invest directly in shares.
However, many people choose to invest in a fund or fixed term investments / structured products instead. The advantages of these can include diversification, lower transaction costs (as your investment can be pooled with those of other investors) and professional management expertise.
They can also be easier to understand and less time-consuming for beginners or intermediate investors.
Read on for more information about funds and structured products.
We use the word 'fund' to describe a collective investment product. It differs from direct investing in that each fund pools together and invests money from many investors. A fund manager manages overall fund performance on your behalf. The investment approach for each fund differs based on how much risk you are prepared to take with your money and whether you want capital growth, income or a mix of the two.
Funds are able to diversify and reduce potential risk to your money in various ways. Commonly, they can invest in more than one asset class or in multiple markets or geographical locations.
Funds generally don't have a fixed maturity date – they continue indefinitely. As with any investment, though, you should look to hold them for at least five years. Selling earlier than this could mean you get back less than you invested. However, the value of your fund at any point depends on investment performance and if this has been poor you could lose money no matter how long you've been investing.
Fixed term investments / structured products
Want to enjoy the benefits of the stock market but without all the risks? That’s what fixed term investments / structured products are all about as many aim to repay your initial capital on maturity 2 provided you hold them for the full term. It sounds simple but the way they work isn’t and you need to understand the finer details before taking the plunge.
For example, some pay a higher proportion of market gains while others are designed to repay all of your capital if the stock market falls.
The downside is that you could lose money if you withdraw early. In addition the product provider may set ceilings on gains so you might not get the full benefit of performance in the market. And unlike share-based investments, you don't get any dividend income. You can also only invest in them for a limited period of time.
By investing in the structured products that we sell, the repayment of your original investment and payment of any return is secured through a loan to Barclays Bank PLC, which intends to repay your original investment and any return at the maturity date. If financial circumstances prevent Barclays from repaying the loan, then you will receive less than you originally invested or nothing at all.
It’s vital that you understand the pros and cons before investing in a fixed term investment / structured product.
Common features of many fixed term investments / structured products include:
- A fixed term: Unlike open-ended plans you’ll need to leave your money invested for a specified period until the maturity date. If you access your money early, you are likely to get back less than you originally invested and could be charged.
- A component that aims to repay your capital at maturity: Some fixed term investments / structured products aim to return all of your original investment at the end of the fixed term irrespective of market performance. Others do not.
- Index-linked: Many fixed term investments / structured products are linked to a stock market index such as the FTSE 100. This means that your return will depend on the performance of that market during the term of your investment.
The UK financial regulator, the Financial Services Authority, considers it good practice for investors to limit their exposure to fixed term investments / structured products to 25% of their overall investable assets, with no more than 10% of these assets being exposed to a single financial institution.
It’s also important for you to understand the differences between the various types of fixed term investments / structured products including SCARPs (Structured Capital-at-Risk Products). The component that aims to repay capital for the fixed term investments / structured products we sell is provided by Barclays Bank PLC. If Barclays Bank PLC were unable to make payments due under the investment, you could get back less than is due to you or nothing at all.
In respect of investments, if we are unable to meet our liabilities and you make a valid claim, you may be entitled to compensation from the FSCS in respect of the investments that we arrange. This depends on the type of business and circumstances of the claim. Most types of investment business are covered for 100% of the first £50,000, although structured deposit products are covered up to £85,000. Please consult your product brochure for further information about your particular product or fund.
For further information about the scheme (including the amounts covered and eligibility to claim) please ask about it at your local branch, refer to the Financial Services Compensation Scheme or call 020 7892 7300 or 0800 678 1100.
See our fixed term investments / structured products guide for more information.
Structured capital-at-risk products (SCARPs)
SCARPS are not available through Barclays Investments.
Structured capital-at-risk products (known as SCARPs) aim to repay your capital at maturity unless the index or asset price to which the product is linked has fallen below a predetermined threshold. If this happens you can quickly lose your original money. For this reason, if you decide to invest in structured products they should form only a small part of a balanced investment portfolio.
Just because a product offers a component that aims to repay your capital at maturity doesn’t mean it’s foolproof – it could still fail and lose you your original investment.
You should also consider spreading your investment between several products that rely on different financial institutions to protect your money. Always find out which financial institution is ultimately responsible for offering the component that aims to pay capital at maturity.
If you're not clear about fixed term investments / structured products you should get professional advice prior to investing.
What's the next step?
Use our guides to find out more:
- View all our investment options
- View our fixed term investments / structured products
- Read our guide to investment funds
- Understanding risk
How to apply:
- If you know what level of investment risk you're happy to take and are comfortable making your own investment decisions without the help of a financial adviser, view our Investment products and read our brochures before applying online from just £3,000.
- If you would like assistance or are an existing Barclays customer and would like to make an application by telephone, please call 0800 445443 1.
- Remember: if you are unsure if an investment is right for you, please seek independent financial advice.