If you are thinking about dipping your toe in the world of stocks and shares, then it pays to know what type of investment would suit you best.
1. No appetite for risk
You need your cash to be entirely safe and instantly available, and would panic and lose sleep if your capital was reduced at any time.
Invest in cash accounts – bank and building society accounts and instant access ISAs.
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2. Prepared to take some degree of risk
You already have enough cash set aside for your needs but would like to earn some extra income and are happy with a small degree of risk to your capital. You are happy to keep your money invested for the medium term – about three to five years.
Invest in gilts, corporate bonds or equity income funds. Don't forget that you can invest in equity income funds that invest worldwide too, to aid diversification.
3. Happy to tie up your money in the medium term
You have plenty of cash set aside, have utilised your ISA allowance, and are comfortable with some risk to enable your capital to grow. You are happy to have your money tied up for the medium to long term – more than five years.
Invest in a portfolio of funds investing in various geographical regions and sectors, including emerging markets.
4. A long-term view
You have enough cash and wish to invest for the long term. You are quite comfortable with a high degree of volatility and potential risk.
Invest in a portfolio of shares. However, remember to keep a close eye on the companies in which you invest.
RECOMMENDATIONS FOR FIRST-TIMERS
Darius McDermott, managing director of Chelsea Financial Service, recommends:
L&G Dynamic Bond
Fund manager: Richard Hodges
"The fund has seen some stellar performance over the last year, returning 48.23% compared with a sector average of 23.98%. It has a go-anywhere strategic mandate whereby it can select from investment grade and high yield, depending on the environment."
Schroder Income Maximiser
Fund manager: Thomas See
"In an era when gilts are under fire and yields on cash are nothing short of derisory, a defensive equity income generator is certainly worth a look.
"The Schroder Income Maximser maintains a high yield (7%) but, despite having only modest aims for capital growth, still offers plenty of growth potential. The writing of covered call options may curtail upside, but the fund still returned 29.9% in 2009."
Jupiter Absolute Return
Fund manager: Philip Gibbs
"For those who are concerned about the outlook for the economy and want to take a market-neutral view, an absolute return vehicle is something to consider.
"Jupiter Absolute Return is such a portfolio and has the ability to go long and short, seeking to deliver positive returns in all market conditions."
M&G Global Dividend
Fund manager: Stuart Rhodes
"This is a fund that looks to well-run companies that are growing their dividends. It's a very flexible fund with no size or geographic bias."