AD- This is a paid post in collaboration with Wealthify.
Capital at risk.
The topic of investing is often surrounded by some of the most complicated jargon, which you just don’t tend to come across day-to-day unless you work in finance. Lots of us don’t have a background in finance, which means that we are often left to our own devices when it comes to deciphering what this confusing jargon really means.
What’s a fund? Stocks? Bonds? With the help of Wealthify, we will be demystifying these terms along with several others within this post so that you feel more prepared and informed on your investment journey.
What are you investing in?
So you have opened your investment account, but now what? Where does your money actually go when you deposit money into your investment account?
Well, that all depends on what investment style you have chosen. The riskier investment style, the more stocks and shares you will invest in. If your investment style is less risky, you will invest in less stocks and shares, and more different investment types, such as bonds.
You get to determine this when you open your investment account, and select the investment style that most suits your attitude to risk.
So what are stocks and bonds?
A stock represents a share, or partial ownership, of a company. . They are also known as assets.
When you deposit money into your investment account, for example, a Stocks and Shares ISA, you will be investing into lots of different companies and investment types. This is called diversification, and means that your risk is mitigated and spread across different investment types and different markets. This means that if one investment is falling, and another is booming, they can help balance each other out.
To achieve diversification, your money is invested into funds. Investment funds are a way of buying small amounts of lots of different investments. When you invest into a single fund, you could be holding hundreds of individual investments.
There are lots of different types of funds. You may have already heard of active and passive funds. An active fund is when fund managers will actively pick out investments that they think will perform well – these funds are designed to help beat the market, and are not without risk. However, if you are an ethical investor, an actively managed fund means that the fund manager is researching and monitoring each investment to ensure its credibility, which can be a benefit.
On the other hand, passive funds are designed to mirror the collective returns of the market. A passive fund tracks a market index, or a specific market segment, to determine what to invest in.
When you open an investment account with Wealthify, you don’t need to make the decision on what funds you would like to invest in. All you need to do is decide on your investment style, and choose either their Original plan which uses passive funds, or their Ethical plan, which uses active funds.
How do you get returns on your investment?
There are two different ways that you can get returns on your investments. When the shares you are invested in increase in value (and you profit when you sell), and when they pay dividends.
Wherever possible, Wealthify will use accumulation funds which means that any returns get automatically reinvested into your portfolio. This is a good way to take advantage of the power of compounding – when your reinvested profits (e.g. dividends) generate further profits. And if you remain invested over the long-term, compounding could do wonders to your money.
How is your account managed?
When you invest with a Stocks and Shares ISA or General Investment Account with Wealthify, you don’t have to worry about choosing where and what to invest in. This is taken care of for you. Wealthify will build your portfolio based on the investment type you have chosen.
Wealthify rebalance your portfolio which means that they reset your investments (some are bought, some are sold) to ensure that your risk balance is maintained according to the investment style that you originally selected.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.