Where to invest: 4 ways you could invest your money

What are the different types of investments?

From shares to whiskey and watches, there are so many different types of investment. The most common options include stocks and shares, bonds, funds and property:

Stocks and shares

Stocks and shares are basically the same thing  — units of ownership in a company. When you buy a company’s stock, you become a fractional owner of the company - aka a ‘shareholder’. The value of your stock can rise or fall over time, depending on the company (or companies if you invest in lots of companies, for example through an index). If you invest in companies that pay dividends, you can reinvest them or use them as a source of passive income.

Bonds

A bond is a contract between an investor and a borrower. They’re often used by governments and companies to raise funds. They offer a fixed rate of interest for a set term, typically between 5 to 50 years. 

Funds

A fund is a collection of stocks, bonds, and other investment types. One of the main benefits of investing in funds is that they offer more diversification by spreading your investments across a wider range of assets. 

Property

There are several ways to invest in property, but the most popular type of property investment is Buy to Let. Buy to Lets can provide you with a regular income through rent from your tenants, and capital growth if the property’s value increases over time. 

Take a look at our Buy to Let vs stocks comparison guide to learn more.
Read more: How to get a Buy to Let mortgage

Let’s take a look at the different places you can invest in stocks, bonds and funds: 

4 ways to invest your money:

1. Workplace or personal pension

The money you save in a pension will usually be invested in a combination of stocks, bonds, cash and other assets. If you’re employed, your workplace pension can be one of the most effective ways to invest. Not only will your contributions benefit from tax relief, your employer will contribute too. Plus, your pension will likely be investing for a long period of time, allowing the investments time to see a return. 

If you’re self-employed, don’t let a lack of employer contributions stop you from saving for retirement. A personal pension can give you the same tax benefits as a workplace pension, or you could use a Lifetime ISA to save for retirement. You can save up to £4,000 a year, and the government will give you a free 25% bonus up to £1,000 on the funds you save.

You might like: How much should I save in a pension?

2. Stocks and Shares ISA

A Stocks and Shares ISA is a type of investment account where all your profits are tax-free. Over the last 10 years, the average return on stocks and shares ISAs has been 9.64% annually, making them particularly rewarding for long-term investments!

You can invest up to £20,000 in a Stocks and Shares ISA each tax year, which runs from the 6th April to the 5th April. Or you can spread your annual allowance across different types of ISA including Cash ISAs, Lifetime ISAs and Innovative Finance ISAs. 

Compare the best stocks and shares ISAs with our handy guide. 

3. Stocks and shares Lifetime ISA

If you’re saving for your first home or retirement, you could place up to £4,000 of your annual ISA allowance in a Stocks and Shares Lifetime ISA. The government will boost your contributions by 25%, up to £1,000 each year. 

Self-employed? A Lifetime ISA could be a suitable alternative to a private pension, or you can have both. If you’re a basic-rate taxpayer, the 25% LISA bonus will essentially match the amount of tax relief you’d receive with a pension (as 20% in tax relief on £4,000 would boost it to £5,000, which is an increase of 25%). However, if you’re a higher or additional-rate taxpayer, a pension will offer more in tax relief than you’ll earn in LISA bonuses.

If you’d like to use a Lifetime ISA to save for your first home, a Cash Lifetime ISA may be more suitable than a Stocks and Shares LISA — particularly if you’re hoping to buy a property in the next few years. As with any investment, you may lose money but you can reduce the risk by investing for the long term.

Read more here: Cash Lifetime ISA vs Stocks and Shares Lifetime ISA

4. General investment account

If you’ve already used up your ISA allowance for this year and you’re investing money that you’ll need before retirement, you could invest your money in a general investment account (GIA). You may have to pay income tax and capital gains tax on your profits. 

Learn more: How to start investing

What is the safest investment with the highest return in the UK?

Some investment strategies which could have good returns but with a relatively low level of risk are index funds, ETFs, and government bonds. But remember that seeing a return on your investments is never guaranteed, there is always a risk you could lose money.

Index funds and exchange-traded funds (ETF) are typically a collection of stocks, bonds and securities that track the performance of a particular index such as the S&P 500 or the FTSE 100. Investing in funds can be a great way to lower the risk while still getting a good return, as you’re spreading the risk across a diverse portfolio and instead of putting all your eggs in one basket. As with any type of investment, past performance is no guarantee of future results.

UK government and corporate bonds. Government bonds (known as gilt-edged securities or ‘gilts’) are considered low risk, as the UK government has never failed to repay investors. Corporate bonds tend to offer a higher interest rate than gilts, as there’s a higher risk of a company failing and being unable to repay the capital and interest.

Should I invest in crypto?

It depends. Cryptocurrency is riskier than more traditional assets such as stocks and bonds or property, so you’ll need to be comfortable with volatility. The value of your coins can fluctuate dramatically from one day to the next and there’s no guarantee you’ll get your money back. 

A few years ago, cryptocurrency was largely unregulated in the UK, but things are starting to change. All cryptocurrency businesses operating in the UK must now be authorised or registered with the Financial Conduct Authority (FCA), or have their marketing approved by an authorised firm. 

But, if things go wrong, you might not have access to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) like you do with other types of investment. 

Before investing in crypto, make sure the cryptocurrency exchange is reputable and look out for prominent risk warnings. If you’re offered a sign-up bonus or a reward for recommending your friends, this is against the FCA’s rules. 

If you do decide to invest in crypto, it can be a good idea to make cryptocurrency only a small percentage of your overall investment portfolio. That way, you can dip your toes into the blockchain without taking on too much risk. 

For example, let’s imagine you can afford to invest £100 a month. You could invest £95 in index funds or other stock market investments. You could then invest the remaining £5 in cryptocurrencies via a reputable platform.

Remember: There’s no guarantee you’ll get back what you put in, so only invest money you can afford to lose.