Different types of investments have different risk characteristics
typically, the higher you go up the 'risk ladder' the higher the risk and the higher the potential returns. And not all of the available investments within one investment class will be equal either; for instance, a fund investing in UK Corporate Bonds will have a lower risk profile than one investing in UK Shares
Click on each rung of our 'risk ladder' to read more about its characteristics and for links to more information about that investment type. It is, of course, important that you understand the investment risk associated with any investment an that, if you're unsure, you seek independent financial advice.
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Class |
Investment |
Risk and potential
return |
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Derivative |
 CFD & Spread Bets | High |
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Unlike all the other investment types shown on the risk ladder, CFD and Spread Betting trading is carried out via a separate account on a dedicated trading platform in conjunction with our chosen partners, City Index.
For every pound you put into your account you can trade a larger position a process known as 'margin trading'. As margined products, which afford substantial leverage, CFD trading and spread betting involve above average risk to your capital. It is possible to quickly lose more money than your initial deposit and you may be required to make further deposits at short notice. CFD trading and Spread Betting are not, therefore, suitable for everyone.
CFDs and Spread Bets have slightly different characteristics but each enables you to trade in a wide range of UK and overseas markets and asset classes.
Learn more about CFDs and Spread Betting >
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Derivative |
Structured Products | ^ |
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Another in the Derivatives sector, Structured Products come in a number of forms, each with different characteristics. They use different financial instruments such as futures and options to create investments that provide you with a level of exposure to stock market gains coupled with guarantees to limit losses or to lock-in gains as the market rises. So although they are grouped high up the risk ladder, some can actually offer a much lower level of risk by virtue of the fact that they give you protection against falls in the market, albeit that it can also mean a limit to the growth you might otherwise have seen.
Find out more about Structured Products and other Derivatives >
Structured Products list >
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Derivative |
Covered Warrants | ^ |
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A part of the Derivative range of investment those that derive their value from the value of the underlying investment, they give you leveraged exposure to the company or index in which you're investing without buying the actual shares. Their price moves in relation both to the value of the underlying investment and in relation to the time the Covered Warrant has left to run. Covered Warrants can expire with no value and, equally, can be closed out if the 'strike' price for the underlying investment is reached. To trade Covered Warrants you will need to first successfully complete a Suitability Assessment.
Find out more about Covered Warrants and other Derivatives >
Covered Warrants list >
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Commodity Derivative |
ETCs | ^ |
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Like their cousin, the ETF, ETCs work like a Fund in that they are a collective investment, but are traded throughout market hours. They give you a way of investing in a range of commodities such as oil, wheat, lean hogs or commodity indices. Different types of Etc have different characteristics so you need to be sure just how the ETC you are considering works: for instance, is it a straightforward tracker or does it use leverage and hence carries a higher risk?
Learn more about ETCs >
ETC list >
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Equity |
Small-Cap equities | ^ |
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Bottom of the equities pile in terms of size come the Small-Cap companies. 'Small' comes n a range of sizes right down to micro with, for instance companies in the UK's FTSE Fledgling Index. Outside of the main market there's also the AIM market and PlusMarkets in the UK and small cap markets overseas. One way to invest in these smaller markets is to use a Fund specialising in this are you get a diversified investment, management expertise but, of course, pay a fee for it.
UK Indices >
International Indices >
Smaller Companies Funds >
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Equity |
Mid-Cap Int'l equities | ^ |
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Different countries adopt different naming conventions for ranking their companies by market capitalisation. Some have their largest index comprising just 40 companies (France's CAC40) others like FTSE Italia use the term 'Mid'. Remember, international equities carry an exchange rate risk as well as an investment risk. Diversified investment in international mid-cap companies can come via a specialist Fund or ETF.
View the International Indices >
International Mid-Cap Funds >
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Equity |
Mid-Cap UK equities | ^ |
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The next step down the size ladder in terms of size is the FTSE250. This is comprised of the 250 next-largest companies by market capitalisation after those in the FTSE100.
Some of the constituents will be headed upwards, others down so it pays to keep to your eye on which way they might be headed. To get diversification to help spread the risk you might consider Funds or ETFs specialising in Mid-Cap companies.
Who's in the FTSE250 Index? >
UK Mid-Cap Funds >
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Equity |
Large-Cap Int'l equities | ^ |
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As with UK companies, big tends to be beautiful when it comes to risk. Of course, the other end of the spectrum holds that the larger they come, the higher they fall. In general, if you're looking to invest internationally then you'll find large cap stocks to have a lower risk rating than their smaller-cap brethren. The difference with international share is that you'll also have exposure to an exchange rate risk even if the share price doesn't change in local currency, it can go down (or up) in sterling terms due to exchange rate changes.
View the International Indices >
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Equity |
Large-Cap UK equities | ^ |
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The UK's biggest companies by Market Capitalisation (the no. of share in issue x current market price) form the FTSE100 Index (which actually comprises 102 companies, but that's another story). Generally, the share prices of larger companies are more stable and have the lowest bid/offer spreads. That stability brings a lower level of risk. But do bear in mind that even big companies can fail: Marconi, Railtrack, Lehman Brothers, Barings
. You'll also find news about larger UK companies is more plentiful than for smaller companies.
Who's in the FTSE100 Index? >
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Inv Trust |
Investment Trusts | ^ |
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Investment Trusts are companies whose purpose is to invest in other businesses. They are like a Fund in that they pool your investment with those of other investors, managing their assets to achieve the Trust's objectives but you buy shares, and are therefore a part owner of the business, rather than buying units in a Fund. The shares in an investment trust can trade below their book value (the actual value of their underlying holdings) and this can present investment opportunities. You'll find investment trusts listed in our equities section.
Search the equities list >
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Fund |
UK Index ETFs | ^ |
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UK Index ETFs track different UK stock market indices; other ETFs are available that cover other countries as well as market sectors (e.g. mining, pharmaceuticals). Unlike Funds, however, they are traded continuously on the Exchange throughout market hours so you can move in and out of them more actively if you want to. Typically, an ETF will have a lower management fee than a Fund and there's no initial charge either. Different indices will have different risk profiles the FTSE100 Index for instance will be a lower risk overall than the FTSESmallCap index. Overseas indices bring with them the added risk of currency movements which might reduce your sterling value even if the 'home' currency value is unchanged. Just as with Funds, ETFs covering specific market sectors will typically be of higher risk than those covering an Index.
Learn more about ETFs >
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Fund |
Equity Funds | ^ |
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As a first move into equity investing, Funds (Unit Trusts and OEICs) can be a good way forward you choose the Fund and the Fund Manger chooses the investments. Of course, there's a cost to pay often an initial charge and an annual management fee that comes out of the returns. But it does mean you're getting professional management for your money. Remember, not all equity funds are the same their investment strategy and, more specifically, where they invest in will affect their risk and return. Global equity funds will also carry an exchange risk. Our Fund Selector can help you find the funds that fit your requirements.
Learn more about Funds >
UK Equity Funds >
Global Equity Funds >
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Property |
Property | ^ |
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An Englishman's home may be his castle but in Property terms we are looking here at investment property. It's well know residential property prices rise and fall depending on supply and demand, interest rates, lending criteria etc, but in the commercial but commercial property world values are more directly related to rental income. Bricks and mortar investments can take time to realise but there are alternatives such as Property Funds, REITS (a form of property company share with particular tax benefits, and direct investing via share in house builders, construction companies and the like. For a diversified portfolio in one investment, consider Real Estate Funds.
Visit our Property Market data section >
REITs >
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Bond |
Bonds |
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Bonds are money you lend to the issuer in return for a regular income payments and the return of your capital at maturity. Generally traded in £100 'par value' units, the price of each unit will vary, typically in relation to interest rates generally and the time to run to maturity the nearer the maturity date, the nearer the market price will be to par.
Bonds can be bought individually or via Bond Funds, which give to access to a managed 'basket' of Bonds - but at the cost of an annual management fee and often an initial charge. Overseas Bonds will carry a higher risk than Bonds issued by UK Companies and of course, the risk is directly related to the credit-worthiness of the issuer, so look for their credit rating AAA is the best.
Learn more about Bonds >
UK Fixed Income Funds >
Global Fixed Income Funds >
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Gilt |
Gilts | ^ |
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Gilts, or to give them their full title, Gilt-Edged Securities, are bought in units of £100 (the 'par value') effectively representing money you lend to the UK Government. As such they are held to be safe, so the 'premium' you get over cash interest rates will be lower than for other, similar investments that carry a higher risk of default. Different Gilts offer different interest rates some fixed, some inflation-linked, and different maturities. You can also buy 'bundles' of different Gilts via a Gilt Fund. At maturity the 'par' value is repaid to you so bear in mind inflation could erode the value of the capital you initially invested.
Learn more about Gilts >
UK Gilts >
UK Gilt Funds >
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Cash |
Cash |
Low |
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Everyone needs a bit of cash set aside that's readily accessible should you need it. As a rule of thumb, it's generally accepted that 3 month's income is a sensible minimum to have set aside. The value of cash can be eroded by inflation, so it's important to get the balance right between money at hand for the unexpected and getting a better return.
See latest interest rates, tax details and UK economic date >
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