Investments

What's the difference between savings and investments?

There is a general distinction between savings and investments:

Savings - this is money you might need to get at quickly or money you are setting aside for a purchase or expense that you know will come up fairly soon (like a holiday or a deposit on a house). For every £1 you save you will always get a £1 back (short of a bank or building society collapse).

Investments - these are really for the longer-term - money you can afford to tie up for five years or more. Investments are not guaranteed to return your money in full and are usually considered as suitable for money that you can put aside for five years or longer.

What are shares?

Shares are small stakes in a company. When you buy shares you become a joint-owner of the company along with all the other shareholders.

You can buy either: new shares when a company first sells them to raise money to invest in its business; or existing shares which are traded on a stock market.

The stockmarket price of shares can go up and down. For example, when a company is doing well, its share price may go up and the value of your investment rises but if the company is not doing so well, its share price can go down and the value of your investment then falls. Share values are also affected by the overall level of confidence in the economy at home and the international economic climate. Although there is the risk that shares can go down in value, people invest in shares because there is also the possibility that they can make money through growth in the capital they have invested and through being paid dividends on their shares.

What is capital growth? - If you buy shares in a company whose share price goes up, you will be able to sell your shares for more than the price you bought them at, so the initial capital (money) you invested has grown.

What are Dividends? Companies usually share their profits with shareholders by paying out dividends. These are usually paid twice a year and the amount that is paid out varies between companies.

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