MSE’s Academy of Money
MSE’s Academy of Money

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MSE’s Academy of Money

10 Investments – the riskier (but possibly rewarding) side of saving up

Up until now we have focused on savings accounts where the money deposited is not at risk unless the institution defaults, and even then there is decent protection, as detailed earlier.

The image is a line graph showing the movement in the FTSE-100 index from its launch in 1984 to early 2020. Over that time the index rose from 1000 to over 7000. Whilst the trend has been clearly upwards there have been some significant falls in the index during these years – most significantly in the early 2000s and again in the late 2000s. The fall in the early 2000s resulted from the bursting of the ‘dotcom’ bubble (the speculation in internet-related companies). The fall in the late 2000s resulted from the worldwide banking crisis. The sharp fall in early 2020 relates to the impact of the Covid-19 pandemic.
Figure 11 The FTSE-100 share index 1984-2020

With investments (which can include shares, bonds or investment funds that can hold these types of assets), the investment itself can fall or rise in value which adds a significant risk, but can also lead to much bigger rewards. Do also note that while we don’t go into too much detail on the fees for investing, there is normally something to pay – whether to a broker to buy shares, a fund manager to manage your funds or the government in tax. So check before you invest.

Later we’ll explore investment funds, which represent the usual way that personal investors invest in shares and other assets such as commodities and property. This is done by pooling lots of investors’ money into a giant fund where a manager may invest that cash in all manner of different investment types – so you don’t need to be too active and can let someone else do the hard work for you (for a fee, of course).

You may think that investments like this are not for you, but if you have pension savings, then whether you know it or not, you are almost certainly an investor as your money will be in one or a number of funds. The next sections will help you learn more about how your money is invested.

To understand the nature of these funds, let’s first look at how the chief types of investments work in case you want to invest directly in them, or if you simply want to know the information to understand more about the building blocks of funds.


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