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Types of investment

You may have heard of all sorts of investments – ISAs, shares, property, unit trusts – the list goes on. However, the best way to understand investments is to think about investing as having three ‘layers’.

  1. The underlying investment itself will fall into what are referred to as asset classes. There are four main asset classes – Shares, Bonds, Property and Cash deposits. You can invest in each of these directly if you wish.
  2. Pooled investments. This is when you put your money with other investors to invest in one or more of the above asset classes. This spreads your risk and saves on costs. Open-ended investment funds, investment trusts and life assurance bonds are the most common pooled investments.
  3. Tax wrappers. These are tax breaks that you can – subject to certain rules – wrap around your investment, to shield it from either some or all tax. The wrapper can be around either the underlying investment or the pooled investment. The two most common tax wrappers are ISAs and pensions.