Investments

Investment is the use of current income to accumulate capital assets and thereby expand productive capacity for the future. Saving is the deferral of consumption possibilities to the future by spending less than the total income available.

Businesses invest in factories, commercial buildings, machinery, equipment, inventories and some intangible types of capital assets such as corporate knowledge, human capital and customer good will. Consumers invest in housing and financial assets. Governments invest in social infrastructure such as roads, ports, schools, hospitals, museums and defence assets.


Investment is made possible by saving, with banks and other financial institutions facilitating the flow of savings to investors.

Savings

Investors sticking to the safety of bank and building society deposit accounts have suffered as interest rates tumble.

Fortunately, investors willing to take slightly more risk with their money can achieve potentially better returns over the longer term than if their money was left in a deposit account. And this is without having to go as far as taking the higher risk of investing in individual companies where the value of your shares can vary from day to day. Risk, for the purposes of this guide, is taken as being price volatility.

With hundreds of different investments available, the type that suits you best depends on a number of things such as the risk you are willing to take, the amount of income you need (if any), when you need your money back and the rate of tax you pay.

You should always keep part of your money in an easy access deposit account to cover unexpected expenses. Some experts suggest keeping as much as 3 months net salary in the bank or building society. Do take the time to seek out one of the top paying accounts.

Over the longer term some experts argue that investing very conservatively and sticking only to deposit accounts offered by banks and building societies carries its own dangers because your money is not working hard enough and the effects of inflation can mean that your money has less purchasing power.