If you are looking to save for a rainy day, then there is a whole plethora of options open to you. Shares and bonds are two of the main investment vehicles, so we’re taking a look at the main reasons for considering each:
Shares
Traditionally, shares and trading them had a vestige of glamour, even though it has now become a far more accessible activity. Essentially, it consists of buying shares in any company that is floated on a stock exchange, and then (hopefully) selling these shares for a profit as the company’s stock rises.
The plus points of shares is that when they work, they can provide a higher return than almost any other asset class. The negative is the associated risk and volatility; share prices can go down as well as up at any time depending on market movements, meaning that investment or returns can be greatly reduced. Often the investments with the highest potential for returns are also the most risky.
Bonds
Bonds are a form of corporate or Government debt – which is a strange way to think of a savings product, as it seems to do the opposite to what you expect. The idea is that you ‘lend’ the company /Government a fixed amount by purchasing a bond. They then pay interest on this loan on a yearly basis, the bonds are set for a fixed term and at the end of this period the debt is paid off.
Bonds are highly secure and provide a regular, unchanging income. However, the quality of bonds does vary between companies and in some cases, unexpectedly high inflation can eat away at any profit from the investment.