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Your guide to
investment markets

There are hundreds, if not thousands of different things that you can choose to put your money into. Stocks, shares, property and cash are all popular choices.

Our expert investment team carefully selects the markets that your money goes into, picking those that are likely to help grow your savings. Here’s where your pension is currently invested.

A share is exactly what the name implies, a share in a company. As a shareholder you own part of the company, including its assets like equipment, inventory or patents. You’re also entitled to a share of the profits. If you own the shares yourself this may be paid directly to you in what’s known as a dividend. As you own these shares indirectly through your pension, we reinvest your dividends to give you a bigger stake in the company.

As well as benefiting from dividends, people also invest in shares to make money from changes in the share price, buying when prices are low and selling when they’re high. Share prices are quoted on the stock market.

As the share price rises, so will the value of your investment. If the share price falls, the value of your investment falls with it. To convert your shares back into cash, you have to sell them to someone else in the stock market. The price you get depends several things, including what other investors think the future value of the share is likely to be.

Owning certain types of share means you can also have a say in how that company is run. Shareholders are entitled to vote on certain decisions at the company’s annual general meeting (or AGM). A fund manager or investor may sometimes take advantage of their right to vote to influence the way a company is run – this is one of the ways we push companies towards responsible business practices.

These investments are a type of loan, usually known as gilts or bonds. Like any loan, it has a repayment date and charges interest.

They’re used by governments or companies to raise money in the same way that you might borrow money from the bank to buy a car or a house. They are often just called bonds, but UK government bonds are also known as gilt-edged securities or gilts, and bonds issued by companies are known as corporate bonds.

Bonds are a relatively secure investment as they usually pay regular interest and are repaid in full on the repayment date. This means they can be useful as fund managers have a secure, stable source of income.

A lot of people invest in property, whether it’s the value of a family home or by buying a second property to rent out. It’s been a very profitable type of investment over the last 10 years or so, but direct property investment of this sort can be quite risky and hard to cash in if the property market falls.

Fund managers also invest in property – both residential and commercial. They won’t often buy properties directly, although they might do depending on the nature of their investment fund. More often they will invest in companies that manage properties. They might also invest in other funds that specialise in property investing, known as real-estate investment trusts (REITs).

A commodity is a natural resource that can be processed and sold. Commodities that are tracked in the financial markets include agricultural goods, metals, energy and minerals. There are two general categories– soft and hard commodities. Soft commodities are typically grown, whereas hard commodities are usually mined or extracted.

There are several ways to invest in commodities. One way is to purchase varying amounts of physical raw commodities. A more common route for institutional investors is to invest through futures contracts.

A future contract is an agreement between two parties to exchange, at some fixed future date, a given quantity of a commodity for a price defined when the contract is finalised. The value of these contracts rises and falls over time depending on supply and demand for the underlying commodity and fund managers make money by trading the contracts rather than trading the goods.

Another way to invest in commodities without having to buy the physical products is by putting your money in specific investment funds, like mixed equity and futures funds. These usually invest in a variety of commodities as well as commodity-related businesses. For instance, a fund could own equity shares in companies involved in storage, machinery or distribution while also holding future contracts in wood, coffee and iron.

Most investment funds have an allocation to cash, but this doesn’t mean that the manager is keeping piles of fifty-pound notes in his or her drawer. What cash actually means in this context is closer to the types of fixed-interest savings you might know about from your bank or organisations such as National Savings and Investment (NS&I). These types of investment are also known as money market or liquidity funds. Liquidity means how easy it is to sell a particular asset. Liquidity funds are called this because they’re very easy to convert to cash when the fund manager needs it. They carry very little investment risk as they always pay a set amount, but they can be subject to inflation risk.

Liquidity funds have two uses in an investment fund.

Firstly, they can be used to protect the value of your money when other assets – such as shares or bonds – are behaving in an unpredictable way. At these times the manager will put a larger proportion of money into investments that have a guaranteed return.

Secondly, they form a reserve from which the manager can buy other types of asset and pay out to investors when they want their money back.

Private credit is a type of loan. Unlike gilts and bonds, which are bought and sold via public stock markets, private credit is negotiated directly between the investor and the borrower.

While the word ‘private’ refers to the type of investment, the borrower doesn’t have to be a private company. Loans can be raised by private companies, public companies, corporate groups, subsidiaries of companies, or even entities that are specifically set up to finance projects like building shopping centres, apartment buildings or wind farms, or developing new technologies like artificial intelligence (AI) or blockchain.

Infrastructure debt and infrastructure gives investors the opportunity to fund long-term, challenging infrastructure projects. These projects usually provide essential services or utilities, like solar farms, roads, power plants or hospitals. They’re a way of investing in particular assets rather than in companies.

Not only does infrastructure debt or infrastructure equity give us the chance to cherry pick projects that directly support our responsible investment goals, they offer a relatively stable, predictable cash flow with less chance of the investment suddenly rising or falling in price.

They’re generally a different type of debt to corporate bonds, allowing investors to spread their risk across different markets. Like corporate bonds, they’re usually a low risk opportunity for your money.

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