| There are as many different types of financial | | | | investments, however, the risk is much higher, |
| service and products around as the human | | | | and you may end up getting back less than you |
| imagination can think of. Where there's a way to | | | | put in. In a worst-case scenario, you may lose |
| make money, people will figure out ways to | | | | everything you put in. |
| market the idea. Add to that the complication that | | | | As a general rule, the longer you are prepared to |
| if one company can do it, then so can every | | | | wait for your pay-off, the higher your reward will |
| other company and possibly offer a better deal | | | | be. Longer term investments will generally be a |
| besides, and the financial services industry begins | | | | better bet than short-term investments - savings |
| to look like a jungle. | | | | mechanisms will accrue interest faster with |
| Luckily, things aren't as complex as they seem. | | | | compound interest and investment mechanisms |
| Almost all financial services and products | | | | will be able to weather short-term fluctuations in |
| effectively do one of three things. Either: | | | | the market. |
| - You lend somebody money for a time, they use | | | | A word of caution though - this is a general |
| that money to make more money, and they give | | | | principle, not set in stone! Long-term, low risk |
| you a share of the profit. | | | | investments can still turn sour, and we have |
| - You borrow money from somebody for a time, | | | | famously seen in the press recently how |
| you pay them back in some agreed way, and | | | | long-term low-risk savings plans such as |
| they charge you for the use of the money. | | | | final-salary pension schemes can go wrong. Even |
| - You buy something at one price and sell at | | | | savings mechanisms rely on investment to |
| another. | | | | generate the interest, and so are dependant on |
| The key to choosing which of these products to | | | | the market. |
| use is in gauging the amount of risk you are | | | | Often the key differentiator between one product |
| prepared to take, how long you are prepared to | | | | and another is how efficiently the operation |
| wait for the pay-off, and how to make the | | | | works. This is how one bank account can afford |
| process more efficient. | | | | to offer you a better interest rate than the next. |
| In general, if you are prepared to take more risk, | | | | Clever ways of making the money work harder |
| you may reap better rewards. Of course, you | | | | can also make the difference. |
| may also lose out more. Most forms of financial | | | | Part of your financial planning should be to identify |
| product are a gamble to one degree or another - | | | | your attitude to risk, and to determine what kind |
| it is up to you to identify your attitude to risk and | | | | of timescale your goals in life give you to work in. |
| choose an appropriate product. A bank current | | | | Once you have done this, you have already gone |
| account is very low risk, as you will always get | | | | a long way to defining what kind of product would |
| out at least as much as you put in. In the case of | | | | suit you best. |