Once you’ve opened an investment account, you can then choose what to invest in within the account. With most investment platforms, money can be invested on a monthly basis via direct debit, or with one-off lump sums. Whichever way you choose, not all money held within an investment account needs to be invested right away. You can hold it in cash, or you use it to invest in one of the following main investment types.
Money held in an investment account that is not currently being invested is ‘held in cash’. An investor might want to hold cash in their account to wait for the right investment opportunity to come along, or because they have just bought an investment and have a bit of cash leftover from the transaction. If the investment platform is covered by the Financial Services Compensation Scheme (FSCS), then up £85,000 worth of cash held in an investment account will be protected if the investment platform goes bust.
A commodity is basically a fancy term for any raw or naturally occurring product – think meat, oil, gold, coffee. There are two types of commodity, hard commodities and soft commodities. Hard commodities are products that need to be mined or extracted from the ground, whereas soft commodities refer to livestock and agricultural produce. Commodities can be bought, sold and traded on the commodities market. Another common way to trade commodities is through the buying and selling of contracts, the value of which is based on the commodity itself.
Company stocks represent a piece of ownership in a company and are sold as shares. They experience price changes throughout the trading day and can normally be bought and sold instantly. Because stocks represent the market value of one company, they can be volatile, and present the biggest potential for growth and losses.
Funds are diversified investments made up of multiple assets. These can be made up of stocks, bonds and much more. They can either be actively managed by a fund manager, or track a stock market index, like the FTSE 100 in the UK, or the S&P 500 in the States.
An investment trust is a company that has been set up for the sole purpose of investing, and its shares can be bought and sold on the stock market. The value of the shares in an investment trust is directly related to the value of the underlying investments that the trust holds. Investment trusts can invest in anything from stocks and property, to private businesses and infrastructure. Because they are companies, they have to produce financial reports and accounts on an annual basis, and will have a board of directors to whom the trust is accountable to.
A bond is an IOU between an investor and a borrower. Basically, the investor lends money to the issuer of the bond for a set period of time and is paid interest on that amount until the money is returned. Bonds are used by both governments and corporations to raise money. The date the IOU must be repaid is called the maturity date. The interest is called the ‘coupon’.
It is because of this regular interest payment that many people choose to invest in bonds. They are typically used by investors who want to generate a regular income from their investments! Bonds also tend to be less volatile than stocks, making them a great choice for investors who would like to diversify their portfolios.
Exchange-traded funds, or ETFs, are investment funds that are traded on the stock exchange. Conventional funds cannot be bought and sold during the trading day and do not experience minute to minute price changes. They are valued once per day, at the end of the trading day. ETFs therefore provide a way for investors own diversified investments that can be bought and sold like company stocks.
A cryptocurrency is a form of digital currency which can be invested in or used to buy and sell things. Cryptocurrencies differ to physical currencies in that they are decentralised. They are not confined to any one country or institution and can be sent directly between users via peer-to-peer systems. There are thought to be more than 4,000 cryptocurrencies — far more than the 180 world currencies — and they have become hugely topical over the past five years, due to the huge rise in the value of cryptocurrencies such as Bitcoin and Ethereum. You can read more about cryptocurrencies in comparetheplatform’s ‘Should I Invest In Cryptocurrency?‘ series!
So there you have it! In this article we’ve discussed the difference between an investment platform, an investment account and the investments you can hold within that account. The investment platform you choose will generally depend on the amount of help you would like in making your investment decisions, and the amount you are happy to pay in fees.
You can hold one or more investment types within an investment account, and open one or more investment accounts within an investment platform. Depending on the type of account you use, you can buy and sell investments quite frequently, or save over the course of your working life. It really does come down to your financial objectives, risk tolerance and time horizon.
comparetheplatform is a price comparison service that aims to take the hassle out of selecting an investment platform. On the comparetheplatform website, you can enter a few short details about yourself and find the right investment platform for you.